S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
WASHINGTON, D.C. 20549
______________________
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED AUGUST 31, 1994.
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
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.)
200 WILMOT ROAD, DEERFIELD, ILLINOIS 60015___
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 940-2500___
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered______
NEW YORK STOCK EXCHANGE
__COMMON STOCK ($.625 PAR VALUE)____________ ___CHICAGO STOCK EXCHANGE_____
NEW YORK STOCK EXCHANGE
__PREFERRED SHARE PURCHASE RIGHTS___________ ___CHICAGO STOCK EXCHANGE_____
Securities registered pursuant to section 12(g) of the Act: NONE____
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ______
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. [ ]
AS OF OCTOBER 31, 1994, THERE WERE 123,070,536 SHARES OF WALGREEN CO.
COMMON STOCK, PAR VALUE $.625 PER SHARE, ISSUED AND OUTSTANDING AND THE
AGGREGATE MARKET VALUE OF SUCH COMMON STOCK HELD BY NON-AFFILIATES (BASED UPON
THE CLOSING TRANSACTION PRICE ON THE NEW YORK STOCK EXCHANGE) WAS APPROXIMATELY
$4,531,488,000.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31,
1994, ONLY TO THE EXTENT EXPRESSLY SO STATED HEREIN, ARE INCORPORATED BY
REFERENCE INTO PARTS I, II AND IV OF FORM 10-K. PORTIONS OF THE REGISTRANT'S
PROXY STATEMENT FOR ITS 1994 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY
11, 1995, ARE INCORPORATED BY REFERENCE INTO PART III OF FORM 10-K.
PART I
Item 1. Description of Business
(a) General development of business.
Walgreen Co. (the "company" or "Walgreens") was incorporated in 1909 as a
successor to a business founded in 1901 as a single retail drugstore in Chicago,
Illinois, by Charles R. Walgreen, Sr. At August 31, 1994, the company operated
1,966 retail drugstores and 2 mail order facilities in 30 states and Puerto
Rico.
In fiscal 1994, the company opened 194 new drugstores, acquired 2 stores,
completed remodelings of 70 units, and closed 64 drugstores. Net selling space
of drugstores was increased from 18.0 million to 19.3 million square feet. In
the last five fiscal years, the company has opened 663 new drugstores, 1 new
mail service facility, acquired 21 stores, completed remodelings of 624 units
and closed 201 drugstores. In addition, 2 major distribution centers were added
during the five-year period and 1 was closed.
The company expects to open 200 or more new stores annually for the next
five years, with the goal of operating 3,000 stores by the year 2000. The
company recently entered the Cleveland/Akron/Canton market with plans to have 15
stores open by Thanksgiving and expects to open four to five stores in Buffalo
by Christmas. In the next three years, 25 to 30 stores are expected to open in
Philadelphia, the first of which will open in the fall of 1995. The company
intends to enter the Seattle/Tacoma market in fiscal 1996. An eighth major
distribution center is planned to open in fiscal 1995 near Sacramento,
California, to serve the growing store base in the western United States.
Walgreens Healthcare Plus is the company's three-year old pharmacy mail
service subsidiary. The Orlando, Florida, state-of-the-art facility, opened
September 1992. The company also plans to open a new and larger mail service
facility in Tempe, Arizona, which is scheduled to be open in November 1994.
This unit, with an initial capacity of 5,000 prescriptions per day, is designed
to service future growth.
Technological advances include the continued implementation of the
"Strategic Inventory Management System" designed to lower inventory investment
and improve marketing capabilities. All major distribution centers are totally
on this new system while store implementation continues. Store scanning is now
providing marketing information that was not available a few years ago. Direct
links between the company's pharmacy computer network and third party
administrators represent over 80% of the company's third party business. These
"links" cause faster reimbursement and lower rejection rates. A multi-million
dollar project called Intercom Plus has begun. This system, which is a
re-engineering of the prescription filling process, is designed to improve
productivity and patient service. Store implementation is scheduled to begin in
Spring 1995.
(b) Financial information about industry segments.
The company's primary business is the operation of retail drugstores.
1
(c) Narrative description of business.
(i) Principal products produced and services rendered.
The drugstores are engaged in the retail sale of
prescription and nonprescription drugs and carry additional
product lines such as general merchandise, liquor and
beverages, cosmetics, toiletries and tobacco.
The estimated contributions of various product classes
to sales for each of the last three fiscal years are as
follows:
Percentage_________
Product Class 1994 1993 1992_
Prescription Drugs 41% 38% 37%
General Merchandise * 24 25 25
Nonprescription Drugs * 13 14 14
Liquor, Beverages 9 10 11
Cosmetics, Toiletries * 9 9 9
Tobacco Products * 4 4 4__
Total Sales 100% 100% 100%
====== ====== ======
* Estimated based, in part, on periodic sampling of
about 1% of retail units.
(ii) Status of a product or segment.
Not applicable.
(iii) Sources and availability of raw materials.
Inventories are purchased from numerous domestic and
foreign suppliers. The loss of any one supplier or group of
suppliers under common control would not have a material
effect on the business.
Fuel and other sources of energy are relied upon for the
distribution of merchandise and in the general operations of
the retail stores. Increased energy costs over the years
have not materially increased the costs of operations.
2
(iv) Patents, trademarks, licenses, franchises and
concessions held.
Walgreens markets products under various trademarks and
trade names and holds assorted business licenses (pharmacy,
occupational, liquor, etc.) having various lives, which are
necessary for the normal operation of business.
(v) Seasonal variations in business.
The business is seasonal in nature, with Christmas
generating a higher proportion of sales and earnings than
other periods. See the caption "The Walgreen Year...A Review
by Quarters" on Page 30 of the Annual Report to Shareholders
for the year ended August 31, 1994 ("Annual Report"), which
is incorporated herein by reference.
(vi) Working capital practices.
During fiscal 1994 the company did obtain funds through
the placement of commercial paper. The company generally
finances its inventory and expansion needs with internally
generated funds. However, short-term borrowings will be
necessary to finance the growth in inventory prior to the
1994 Christmas season.
Due to the nature of the retail drugstore business,
sales are principally for cash. Customer returns are
immaterial.
(vii) Dependence upon limited number of customers.
Sales are to numerous customers which include health
maintenance organizations (HMOs); therefore, the loss of any
one customer or a group of customers under common control
would not have a material effect on the business. No
customer accounts for ten percent or more of the company's
consolidated revenue.
(viii) Backlog Orders.
Not applicable.
(ix) Government contracts.
The company is not a party to any significant government
contracts.
(x) Competitive conditions.
The drug store industry is highly competitive. As one
of the volume leaders in the retail drug industry, Walgreens
competes with various retailers, including chain and
independent drugstores, grocery, variety and discount
department stores. Competition remained keen during the
fiscal year with the company competing on the basis of price,
convenience and variety. The company's geographic dispersion
tends to offset the impact of temporary economic and
competitive conditions in individual markets.
3
Sales by geographic area for fiscal 1994 were as
follows:
South and Southeast 28%
Midwest Locations other
than Chicago and Suburbs 21
Southwest 18
Chicago and Suburbs 14
West 10
East 9
(xi) Research and development activities.
The company does not engage in any material research
activities.
(xii) Environmental disclosures.
Federal, state and local environmental protection
requirements have no material effect upon capital
expenditures, earnings or competitive position of the
company.
(xiii) Number of employees.
The company employs approximately 61,900 persons, about
19,900 of whom are part-time employees working less than 30
hours per week.
(d) Financial information about foreign and domestic operations and
export sales.
All the company sales occur within the continental United States
and Puerto Rico. There are no export sales.
Item 2. Properties
The following are the principal facilities utilized by the company.
Office Facilities
Description Location Interest in Property_____
Office building 200 Wilmot Road Owned in fee by the
(Corporate Headquarters) Deerfield, Illinois company.
3 buildings
255,000 square feet
Office building 300 Wilmot Road Owned in fee by the
2 buildings Deerfield, Illinois company.
148,000 square feet
Office building 1517 N. Bowman Ave. Leased, expiration date
42,000 square feet Danville, Illinois 10/31/2022, option to
cancel with 12 months
notice 10/31/02,
10/31/07, 10/31/12
and 10/31/17 with no
penalty, option to cancel
any time after 10/31/87,
with 6 months notice
provided the company
offers to purchase upon
the terms and conditions
of the lease.
4
Office Facilities - continued:
Description Location Interest in Property_____
Data Processing facility 1084 Mt. Prospect Plaza Leased, expiration date
and office building Mt. Prospect, Illinois 11/30/2005, 2 options to
72,000 square feet extend for 10 years
each, and 6 options
to extend for 5 years
each thereafter.
Distribution Facilities
Description Location Interest in Property_____
Warehouse 5300 St. Charles Road Owned in fee by the
267,000 square feet Berkeley, Illinois company.
Warehouse addition 5300 St. Charles Road Leased from the Village
192,000 square feet Berkeley, Illinois of Berkeley, Illinois in
connection with an
Industrial Revenue Bond
Issue, expiration
date 12/1/98, with option
to buy.
Warehouse 4400 State Highway 19 Leased, expiration date
357,000 square feet Windsor Township 2/28/2007, 5 options to
Dane County, Wisconsin extend for 5 years, with
option to buy.
Warehouse addition 4400 State Highway 19 Owned in fee by the
109,000 square feet Windsor Township company.
Dane County, Wisconsin
Warehouse 2400 North Walgreen St. Leased, expiration date
200,000 square feet Flagstaff, Arizona 5/31/2003, 6 options to
extend for 5 years each,
with option to buy.
Warehouse addition 2400 North Walgreen St. Owned in fee by the
124,000 square feet Flagstaff, Arizona company.
Warehouse 8110 Kempwood Drive Owned in fee by the
404,000 square feet Houston, Texas company.
Warehouse 2455 Premier Row Leased, expiration date
206,000 square feet Orlando, Florida 3/31/2006, 5 options to
extend for 5 years each,
with option to buy.
Warehouse addition 2455 Premier Row Owned in fee by the
146,000 square feet Orlando, Florida company.
Warehouse 730 W. U.S. Highway 30 Owned in fee by the
91,000 square feet Valparaiso, Indiana company.
Warehouse 5100 Lake Terrace N.E. Owned in fee by the
431,000 square feet Mt. Vernon, Illinois company.
5
Distribution Facilities - continued:
Description Location Interest in Property_____
Warehouse 125 N. Commerce Way Owned in fee by the
324,000 square feet Bethlehem, Pennsylvania company.
Other Facilities
Description Location Interest in Property_____
Mail Order Pharmacy 519 W. Lone Cactus Drive Leased, expiration date
7,000 square feet Phoenix, Arizona 5/31/95.
Mail Order Pharmacy 7357 Greenbriar Parkway Leased, expiration date
37,000 square feet Orlando, Florida 8/31/2003, option to
cancel with 6 months
notice 8/13/97 and
8/31/2000.
Mail Order Pharmacy Price Elliot Research Pk. Facility owned in fee by
(to open November 1994) Tempe, Arizona company; ground
80,000 square feet subleased, expiration
date 12/31/2082, options
to cancel 12/31/13 and
every 5 years thereafter
with 6 months notice.
All warehouses listed above are fully utilized and are served by electronic
data processing systems for order processing control, operating efficiencies and
rapid merchandise delivery to stores. All stores receive merchandise within two
days of ordering. In addition, the company uses public warehouses to handle
distribution needs. Distribution capacity is adequate now, but as the company
continues to expand, additional space will be needed to maintain service levels.
A major distribution center is planned to open in fiscal 1995 near Sacramento,
California, to serve the growing store base in the western United States. This
335,000-square-foot facility, currently under construction, is owned in fee by
the company. Studies are currently being performed to determine where and when
distribution space will be added.
Most of the company's retail stores located in 30 states and Puerto Rico
are leased and fully utilized. The leases are for various terms and periods.
See the caption, "Leases" on page 26 of the Annual Report, which is incorporated
herein by reference. However, the company owns approximately 4% of the retail
stores open at August 31, 1994. The company has an aggressive expansion program
of adding new stores and remodeling and repositioning existing stores. Over the
past five years, approximately 70% of the Walgreen stores have been opened or
remodeled.
The company's four principal office facilities are adequate for current
needs and no plans are currently being made for additional space.
Item 3. Legal Proceedings
The information in response to this item is incorporated herein by
reference to the caption "Contingencies" on page 27 of the Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to each executive
officer of the company as of August 31, 1994:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD_____________
Charles R. Walgreen III 58 Chairman of the Board,
Chairman of the Board since April Chief Executive Officer
1976 and Director
Chief Executive Officer since 1971
Director since 1963
L. Daniel Jorndt 53 President, Chief
President and Chief Operating Operating Officer and
Officer since February 1990 Director
Director since January 1990
Senior Vice President and
Treasurer May 1985 to
January 1990
Charles D. Hunter 64 Vice Chairman,
Vice Chairman since February 1990 Chief Financial Officer
Chief Financial Officer since 1976 and Director
Director since 1974
Executive Vice President
October 1978 to January 1990
Vernon A. Brunner 54 Executive Vice President
Executive Vice President since
February 1990
Senior Vice President
January 1982 to January 1990
Glenn S. Kraiss 61 Executive Vice President
Executive Vice President since
February 1990
Senior Vice President
January 1982 to January 1990
John R. Brown 58 Senior Vice President
Senior Vice President since
May 1985
John A. Rubino 53 Senior Vice President
Senior Vice President since July 1991
Vice President
October 1984 to July 1991
William A. Shiel 43 Senior Vice President
Senior Vice President since July 1993
Vice President
May 1985 to July 1993
7
EXECUTIVE OFFICERS OF THE REGISTRANT - continued:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD_____________
Robert C. Atlas 59 Vice President
Vice President since September 1987
David W. Bernauer 50 Vice President
Vice President since February 1990
Treasurer
February 1990 to June 1992
Regional Vice President
September 1987 to January 1990
W. Lynn Earnest 51 Vice President and
Vice President and Treasurer Treasurer
since July 1992
Regional Vice President
July 1980 to June 1992
Jerome B. Karlin 52 Vice President
Vice President since September 1987
Julian A. Oettinger 55 Vice President,
Vice President, Secretary and Secretary and
General Counsel since January 1989 General Counsel
Roger L. Polark 46 Vice President
Vice President since June 1988
Roger H. Clausen 52 Controller
Controller since June 1988
There is no family relationship between any of the aforementioned officers
of the company.
8
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The company's common stock is traded on the New York and Chicago
Stock Exchanges under the symbol WAG. As of October 31, 1994 there were
29,910 recordholders of company common stock according to the records
maintained by the company's transfer agent.
The range of the sales prices of the company's common stock by
quarters and the cash dividends declared per common share during the two
years ended August 31, 1994 are as follows:
Dividends Common Stock Prices
Declared 1994 1993________
Quarter Ended 1994 1993 High Low High Low__
November $.17 $.15 $43 3/8 $36 7/8 $44 1/8 $37 1/4
February .17 .15 42 1/4 37 3/4 44 1/2 36 1/8
May .17 .15 42 3/4 39 7/8 42 3/4 36 5/8
August .17 .15 40 5/8 34 1/8 43 1/2 36 3/4
Fiscal Year $.68 $.60 $43 3/8 $34 1/8 $44 1/2 $36 1/8
========================================================================
Item 6. Selected Financial Data
The information in response to this item is incorporated herein by
reference to the caption "Eleven-Year Summary of Selected Consolidated
Financial Data" on pages 18 and 19 of the 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 20 and 21 of the Annual
Report.
Item 8. Financial Statements and Supplementary Data
See Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
9
PART III
The information required for Items 10, 11 and 12, with the
exception of the information relating to the executive officers of the
Registrant, which is presented in Part I under the heading "Executive
Officers of the Registrant", is incorporated herein by reference to the
following sections of the Registrant's Proxy Statement:
Captions in Proxy Proxy Page Numbers
Names and ages of Director nominees,
their principal occupations and
other information 2
Securities Ownership of Directors and Officers 4 - 5
Executive Compensation 6 - 12
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report
(1) The following financial statements, supplementary data, and auditors'
report appearing in the Annual Report are incorporated herein by
reference.
Annual Report
Page Number_
Consolidated Statements of Earnings and Retained Earnings 22
for the years ended August 31, 1994, 1993 and 1992
Consolidated Balance Sheets at August 31, 1994 and 1993 23
Consolidated Statements of Cash Flows 24
for the years ended August 31, 1994, 1993 and 1992
Statement of Major Accounting Policies 25 - 26
Notes to Consolidated Financial Statements 26 - 28
Report of Independent Public Accountants 29
Summary of Quarterly Results for the years ended 30
August 31, 1994 and 1993 (Unaudited)
(2) The following financial statement schedules and related auditors'
report are included herein.
10-K
Page Number
Schedule II Amounts Receivable from Related Parties, 16
Underwriters, Promoters and Employees Other
Than Related Parties
Schedule V Property, Plant and Equipment 17
Schedule VI Accumulated Depreciation, Depletion and 18
Amortization of Property, Plant and
Equipment
Schedule VIII Valuation and Qualifying Accounts 19
Report of Independent Public Accountants on Supplemental 20
Schedules
Schedules I, III, IV, VII, IX, X, XI, XII, XIII and XIV 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 subsidiaries
included in the consolidated financial statements are deemed to be
totally held.
11
(3) Exhibits 10(a) through 10(l) constitute management contracts or
compensatory plans or arrangements required to be filed as exhibits
pursuant to Item 14(c) of this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ending August 31, 1994.
(c) Exhibits
3. (a) Articles of Incorporation of the company, as amended.
(b) By-Laws of the company, as amended and restated effective as
of February 1, 1990, filed as Exhibit 4.03 to the company's
Form S-8 Registration Statement on July 15, 1992
(Registration No. 33-49676), and incorporated by reference
herein.
4. (a) (i) Walgreen Co. Debt Securities Indenture dated as of
May 1, 1986, between the company and Harris Trust and
Savings Bank, Trustee, filed with the Securities and
Exchange Commission as Exhibit 4(c) to the company's
Form S-3 Registration Statement on May 22, 1986
(Registration No. 33-5903), and incorporated by
reference herein.
(ii) Walgreen Co. Resolutions of Pricing Committee Relating
to Debt Securities, filed with the Securities and
Exchange Commission as Exhibit 4(a) to the company's
Current Report on Form 8-K dated June 17, 1986
(File No. 1-604), and incorporated by reference herein.
(b) (i) Rights Agreement dated as of July 9, 1986, between the
company and Harris Bank and Trust Company, filed with
the Securities and Exchange Commission as Exhibit (1) to
Registration Statement on Form 8-A on August 15, 1986
(File No. 1-604), and incorporated by reference herein.
(ii) Amendment to Rights Agreement dated as of October 18,
1988, between the company and Harris Bank and Trust
Company. (Note 5)
10. (a) Top Management Long-Term Disability Plan. (Note 3)
(b) Executive Short-Term Disability Plan Description. (Note 3)
________________________________________________________________________________
See Notes on page 15.
12
(c) Walgreen Management Incentive Plan (as amended), filed with
the Securities and Exchange Commission as Exhibit 10(a) to
the company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1994, and incorporated by reference herein.
(d) Walgreen Co. Restricted Performance Share Plan and amendments
thereto effective October 18, 1988 and July 8, 1992, filed
with the Securities and Exchange Commission as Exhibit 10(d)
to the company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1992, and incorporated by reference
herein.
(e) Walgreen Co. Executive Stock Option Plan (as amended
effective October 13, 1992) filed with the Securities and
Exchange Commission as Exhibit 19 to the company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1993,
and incorporated by reference herein.
(f) (i) Walgreen Co. 1986 Director's Deferred Fee/Capital
Accumulation Plan. (Note 1)
(ii) Walgreen Co. 1987 Director's Deferred Fee/Capital
Accumulation Plan. (Note 2)
(iii) Walgreen Co. 1988 Director's Deferred Fee/Capital
Accumulation Plan. (Note 4)
(iv) Walgreen Co. 1992 Director's Deferred Retainer
Fee/Capital Accumulation Plan. (Note 8)
(g) (i) Walgreen Co. 1986 Executive Deferred
Compensation/Capital Accumulation Plan. (Note 1)
(ii) Walgreen Co. 1988 Executive Deferred
Compensation/Capital Accumulation Plan. (Note 4)
(iii) Amendments to Walgreen Co. 1986 and 1988 Executive
Deferred Compensation/Capital Accumulation Plans.
(Note 6)
(iv) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan Series 1.
(Note 8)
(v) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan Series 2.
(Note 8)
(h) Walgreen Co. Executive Deferred Profit-Sharing Plan (as
restated effective April 13, 1994), filed with the Securities
and Exchange Commission as Exhibit 10(b) to the company's
Quarterly Report on Form 10-Q for the quarter ended May 31,
1994, and incorporated by reference herein.
(i) (i) Form of Change of Control Employment Agreements.
(Note 5)
(ii) Amendment to Employment Agreements adopted July 12,
1989. (Note 7)
________________________________________________________________________________
See Notes on page 15.
13
(j) Walgreen Select Senior Executive Retiree Medical Expense
Plan. (Note 6)
(k) Walgreen Co. Profit-Sharing Restoration Plan (restated
effective January 1, 1993), filed with the Securities and
Exchange Commission as Exhibit 10(k) to the company's Annual
Report on Form 10-K for the fiscal year ended August 31,
1993, and incorporated by reference herein.
(l) Walgreen Co. Retirement Plan for Outside Directors. (Note 7)
11. The required information for this Exhibit is contained in the
Consolidated Statements of Earnings and Retained Earnings for the
years ended August 31, 1994, 1993 and 1992 and also in the Notes
to Consolidated Financial Statements, each appearing in the Annual
Report and previously referenced in Part IV, Item 14, Section
(a)(1).
13. Annual Report to shareholders for the fiscal year ended August 31,
1994. 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 Public Accountants.
27. Financial Data Schedule.
________________________________________________________________________________
See Notes on page 15.
14
NOTES
(Note 1) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1986 (File No. 1-604),
and incorporated by reference herein.
(Note 2) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1986 (File No. 1-604),
and incorporated by reference herein.
(Note 3) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1990, and incorporated by
reference herein.
(Note 4) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1987 (File No. 1-604),
and incorporated by reference herein.
(Note 5) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Current Report on Form 8-K
dated October 18, 1988 (File No. 1-604), and incorporated
by reference herein.
(Note 6) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1988 (File No. 1-604),
and incorporated by reference herein.
(Note 7) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1989, and
incorporated by reference herein.
(Note 8) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1992, and incorporated by
reference herein.
15
<TABLE>
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES,
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<CAPTION>
Balance at Balance at
Year Ended Beginning Amounts End
August 31, Name of Debtor of Period Additions Collected of Period
<S> <C> <C> <C> <C>
1994 James Joustra (1) $ 153 $ 0 $ 153 $ 0
1993 Bruce Hyatte (1) 0 108 108 0
James Joustra (1) 0 153 0 153
Harry Zamminer (1) 0 105 105 0
1992 None (2)
<FN>
(1) Represent unsecured interest-free relocation loans.
(2) Amounts receivable from related parties, underwriters, promoters and employees
other than related parties were $100,000 or less.
16
</TABLE>
<TABLE>
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<CAPTION>
Balance at Retirements Balance at
Beginning Additions and Sales End
Classification of Period at Cost at Cost of Period
<S> <C> <C> <C> <C>
1994
Land $ 38,994 $ 25,490 $ 0 $ 64,484
Land improvements 8,545 5,386 (297) 13,634
Buildings (on owned and leased land) 145,285 49,232 (2,444) 192,073
Equipment 821,532 144,330 (56,675) 909,187
Capitalized systems development costs 63,429 24,456 0 87,885
Leasehold improvements 278,374 41,082 (12,856) 306,600
Leased properties under capital leases 24,329 0 (951) 23,378
$1,380,488 $ 289,976 $ (73,223) $1,597,241
========== ========== =========== ===========
1993
Land $ 25,864 $ 13,130 $ 0 $ 38,994
Land improvements 8,503 42 0 8,545
Buildings (on owned & leased land) 124,499 20,786 0 145,285
Equipment 763,775 102,904 (45,147) 821,532
Capitalized systems development costs 53,775 9,654 0 63,429
Leasehold improvements 254,458 38,158 (14,242) 278,374
Leased properties under capital leases 27,426 0 (3,097) 24,329
$1,258,300 $ 184,674 $ (62,486) $1,380,488
========== ========== =========== ===========
1992
Land $ 20,580 $ 5,284 $ 0 $ 25,864
Land improvements 3,116 5,387 0 8,503
Buildings (on owned and leased land) 114,638 9,861 0 124,499
Equipment 711,369 83,891 (31,485) 763,775
Capitalized systems development costs 41,971 11,804 0 53,775
Leasehold improvements 235,482 28,716 (9,740) 254,458
Leased properties under capital leases 27,426 0 0 27,426
$1,154,582 $ 144,943 $ (41,225) $1,258,300
========== ========= ========== ==========
<FN>
Depreciation and amortization are generally provided using the following annual rates:
Data processing equipment 12%
Store, warehouse, and office equipment 8%
Capitalized systems development costs 20%
Buildings (including buildings on leased land based
on lesser of lease terms or useful lives) 2-1/2% to 8%
Land improvements 5%
Leasehold improvements (amortized over the lease term
if shorter than estimated physical life) 8%
Leased properties under capital leases are amortized over the firm term of the respective leases.
17
</TABLE>
<TABLE>
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED AUGUST 31, 1994, 1993, AND 1992
(Dollars in Thousands)
<CAPTION>
Additions
Balance at Charged to Retirements, Balance at
Beginning Costs and Renewals and End
Classification of Period Expenses Replacements of Period
<S> <C> <C> <C> <C>
1994
Land improvements $ 1,456 $ 570 $ (297) $ 1,729
Buildings (on owned and leased land) 27,961 5,916 (265) 33,612
Equipment 277,838 78,336 (47,553) 308,621
Capitalized systems development costs 12,681 8,901 0 21,582
Leasehold improvements 116,079 23,271 (10,453) 128,897
Leased properties under capital leases 17,140 1,124 (951) 17,313
$ 453,155 $ 118,118 $ (59,519) $ 511,754
========= ========= ========== =========
1993
Land improvements $ 1,004 $ 452 $ 0 $ 1,456
Buildings (on owned & leased land) 23,474 4,487 0 27,961
Equipment 245,135 71,235 (38,532) 277,838
Capitalized systems development costs 6,969 5,712 0 12,681
Leasehold improvements 106,404 21,559 (11,884) 116,079
Leased properties under capital leases 19,022 1,215 (3,097) 17,140
$ 402,008 $ 104,660 $ (53,513) $ 453,155
========= ========= ========== =========
1992
Land improvements $ 710 $ 294 $ 0 $ 1,004
Buildings (on owned and leased land) 19,644 3,830 0 23,474
Equipment 208,414 63,588 (26,867) 245,135
Capitalized systems development costs 3,880 3,089 0 6,969
Leasehold improvements 94,946 19,979 (8,521) 106,404
Leased properties under capital leases 17,693 1,329 0 19,022
$ 345,287 $ 92,109 $ (35,388) $ 402,008
========= ========= ========== =========
</TABLE>
18
<TABLE>
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End
Classification of Period Expenses Deductions of Period
<S> <C> <C> <C> <C>
Allowances deducted from receivables for
doubtful accounts -
Year ended August 31, 1994 $ 23,050 $ 4,018 $ (5,467) $ 21,601
======== ======== ========= ========
Year ended August 31, 1993 $ 19,059 $ 12,287 $ (8,296) $ 23,050
======== ======== ========= ========
Year ended August 31, 1992 $ 11,783 $ 19,794 $(12,518) $ 19,059
======== ======== ========= ========
</TABLE>
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES
To the Board of Directors and Shareholders of Walgreen Co.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Walgreen Co. and
Subsidiaries' annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated October 20,
1994. Our report on the financial statements includes an explanatory
paragraph with respect to the changes in the methods of accounting for
postretirement benefits other than pensions and income taxes as discussed
in the Statement of Major Accounting Policies, under "Accounting
Changes". Our audits were made for the purpose of forming an opinion on
those statements taken as a whole. The supplemental schedules II, V, VI,
and VIII included in this Form 10-K are the responsibility of the
company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois,
October 20, 1994
20
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.
(Registrant)
By______C. D. Hunter_______ Date: November 16, 1994
C. D. Hunter
Vice Chairman
Chief Financial Officer
Director
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
____C. R. Walgreen III____ Chairman of the Board, Chief November 16, 1994
C. R. Walgreen III Executive Officer and Director
____L. D. Jorndt__________ President, Chief Operating November 16, 1994
L. D. Jorndt Officer and Director
____C. D. Hunter__________ Vice Chairman, Chief Financial November 16, 1994
C. D. Hunter Officer and Director
____Roger H. Clausen______ Controller November 16, 1994
Roger H. Clausen
____F. F. Canning_________ Director November 16, 1994
F. F. Canning
____Theodore Dimitriou____ Director November 16, 1994
Theodore Dimitriou
____James J. Howard_______ Director November 16, 1994
James J. Howard
____Cordell Reed__________ Director November 16, 1994
Cordell Reed
____John B. Schwemm_______ Director November 16, 1994
John B. Schwemm
__________________________ Director
William H. Springer
_________________________ Director
Marilou M. von Ferstel
21
INDEX TO EXHIBITS
A. DOCUMENTS FILED WITH THIS REPORT
Exhibit 3 (a) Articles of Incorporation of the company,
as amended and restated.
Exhibit 13 Annual Report to Shareholders for the Fiscal
Year Ended August 31, 1994.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 23 Consent of Independent Public Accountants.
Exhibit 27 Financial Data Schedule.
B. DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 3(b) By-Laws of the company, as amended and restated.
Exhibit 4(a)(i) Walgreen Co. Debt Securities Indenture dated
as of May 1, 1986, between the company and
Harris Trust and Savings Bank, Trustee.
Exhibit 4(a)(ii) Walgreen Co. Resolutions of Pricing Committee
Relating to Debt Securities.
Exhibit 4(b)(i) Rights Agreement dated as of July 9, 1986,
between the company and Harris Bank and Trust
Company.
Exhibit 4(b)(ii) Amendment to Rights Agreement dated as of
October 18, 1988, between the company and Harris
Bank and Trust Company.
Exhibit 10 Material contracts
(a) Top Management Long-Term Disability Plan.
(b) Executive Short-Term Disability Plan
Description.
(c) Walgreen Management Incentive Plan, as
amended.
(d) Walgreen Co. Restricted Performance Share
Plan, as amended.
(e) Walgreen Co. Executive Stock Option Plan,
Plan, as amended.
INDEX TO EXHIBITS
(continued)
(f) (i) Walgreen Co. 1986 Director's Deferred
Fee/Capital Accumulation Plan.
(ii) Walgreen Co. 1987 Director's Deferred
Fee/Capital Accumulation Plan.
(iii) Walgreen Co. 1988 Director's Deferred
Fee/Capital Accumulation Plan.
(iv) Walgreen Co. 1992 Director's Deferred
Retainer Fee/Capital Accumulation Plan.
(g) (i) Walgreen Co. 1986 Executive Deferred
Compensation/Capital Accumulation
Plan.
(ii) Walgreen Co. 1988 Executive Deferred
Compensation/Capital Accumulation
Plan.
(iii) Amendments to Walgreen Co. 1986 and
1988 Executive Deferred Compensation/
Capital Accumulation Plans.
(iv) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan
Series 1.
(v) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan
Series 2.
(h) Walgreen Co. Executive Deferred
Profit-Sharing Plan, as restated.
(i) (i) Form of Change of Control Employment
Agreements.
(ii) Amendment to Employment Agreements.
(j) Walgreen Select Senior Executive
Retiree Medical Expense Plan.
(k) Walgreen Co. Profit-Sharing Restoration
Plan, as restated.
(l) Walgreen Co. Retirement Plan for
Outside Directors.
EXHIBIT 3(a)
RESTATEMENT OF ARTICLES OF INCORPORATION
RESTATED ARTICLE R-I
1. The name of the corporation is: Walgreen Co.
2. The corporation was incorporated February 15, 1909 under the
name:
C. R. Walgreen and Co.
3. Subsequent corporate names and the dates of their adoption
are:
Name Date Adopted
Walgreen Co. April 13, 1916
RESTATED ARTICLE R-II
The address of its registered office in the State of Illinois
on the date of this Restatement of Articles of Incorporation is:
200 Wilmot Road, in the City of Deerfield, County of Lake, State of
Illinois, Zip Code 60015, and the name of its Registered Agent at
said address is: Allan M. Resnick.
RESTATED ARTICLE R-III
The duration of the corporation is: Perpetual.
RESTATED ARTICLE R-IV
The purpose or purposes for which the corporation is organized
are:
To manufacture, compound, buy, sell, and generally deal in
drugs, medicines, chemicals and druggists' sundries of all kinds at
wholesale and retail together with all goods, wares and
merchandise.
RESTATED ARTICLE R-V
1. The aggregate number of shares which the Corporation is
authorized to issue is 404,000,000 divided into two classes. The
designation of each class, the number of shares of each class and
the par value of the shares of each class, are as follows:
Class Series (if any) Number of Shares Par Value
Preferred Shares Issuable in Series 4,000,000 $.50
Junior Participating
Preferred, Series A
Preferred 1,231,060 $.50
Common Shares None 400,000,000 $.625
2. The preferences, qualifications, limitations,
restrictions and the special or relative rights in respect of the
shares of each class are:
SECTION A
The Preferred Shares
1. The Preferred Shares may be issued in one or more series
and with such designation for each such series sufficient to
distinguish the shares thereof from the shares of all other series
and classes, as shall be stated and expressed in the resolution or
resolutions providing for the issue of each such series adopted by
the Board of Directors. The Board of Directors in any such
resolution or resolutions is hereby expressly authorized to divide
the Preferred Shares into series and to fix and determine the
relative rights and preferences of the shares of any series so
established as to:
(i) The rate per annum at which the holders of shares
shall be entitled to receive dividends.
(ii) The price at and the terms and conditions on which
shares may be redeemed.
(iii) The amount payable upon shares in event of
involuntary liquidation.
(iv) The amount payable upon shares in event of voluntary
liquidation.
(v) The sinking fund provisions, if any, for the
redemption or purchase of shares.
(vi) The terms and conditions on which shares may be
converted, if the shares are issued with the privilege of
conversion.
The Board of Directors may increase the number of shares
designated for any existing series by a resolution adding to such
series authorized and unissued Preferred Shares not designated for
any other series.
2. All Preferred Shares of any one series shall be identical
with each other in all respects, except that shares of any one
series issued at different times as provided in paragraph 3 of this
Section A, may differ as to the dates from which dividends thereon
shall be cumulative.
3. Before any dividends on the Common Shares or on any other
class or classes of stock of the Corporation, ranking junior to the
Preferred Shares with respect to payment of dividends, shall be
paid or declared or set apart for payment, the holders of Preferred
Shares shall be entitled to receive when and as declared by the
Board of Directors, cumulative cash dividends, out of any funds
legally available for the declaration of dividends and in the case
of each series at the rate per annum, and no more, for the
particular series fixed in the resolution or resolutions providing
for the issue of such series of Preferred Shares, adopted by the
Board of Directors, payable quarterly on such dates, in each year,
as may be fixed in such resolution or resolutions. With respect to
each series of the Preferred Shares, such dividends shall be
cumulative from the respective dates of issue thereof. No
dividends shall be paid on any series of the Preferred Shares in
respect of any dividend period unless all cumulative dividends
accrued prior to said dividend period with respect to all Preferred
Shares of each other series shall have been paid or declared and
set aside for payment.
4. The holders of Preferred Shares shall be entitled to vote
as a class and otherwise as provided by law.
5. Preferred Shares which have been redeemed or shall have
been purchased, converted or otherwise acquired by the Corporation
may thereafter be reissued under such terms and conditions, not
inconsistent with the provisions of this Section A, as the Board of
Directors may thereafter determine.
6. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, and before any
distribution of the assets of the Corporation shall be made to or
set apart for the holders of the Common Shares or of any other
class of shares of the Corporation ranking junior to the Preferred
Shares with respect to payment of dividends or upon dissolution,
liquidation or winding up of the Corporation, the holders of the
shares of each series of the Preferred Shares then outstanding
shall be entitled to receive payment of such amount, as shall be
stated and expressed in the resolution or resolutions adopted by
the Board of Directors providing for the issue of such series; but
such holders upon receipt of such payment shall be entitled to no
further payment.
7. In case of any liquidation, dissolution or winding up of
the Corporation, if the amounts payable with respect to all series
of Preferred Shares then outstanding are not paid in full, the
shares of all series of the Preferred Shares shall share
proportionately in accordance with the respective amounts which
would be payable on said shares if all amounts payable were paid in
full.
8. A consolidation or merger of the Corporation with or into
one or more corporations shall not be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section A.
SECTION B
The Common Shares
1. Subject to the limitations set forth in Section A of this
Restated Article R-V, the holders of Common Shares shall be
entitled to dividends if, when and as the same shall be declared by
the Board of Directors out of funds of the Corporation legally
available therefor.
2. The holders of Common Shares shall be entitled to vote as
provided by law.
SECTION C
The Preferred and Common Shares
No holder of any shares shall have any preemptive right to
subscribe for or to acquire any additional shares of the
corporation of the same or of any other class, whether now or
hereafter authorized (including any shares held by the corporation
in its treasury) or any options or warrants giving the right to
purchase any such shares, or any bonds, notes, debentures or other
obligations convertible into any such shares, excepting only such
right, if any, as the Board of Directors, in its discretion from
time to time shall determine and provide.
SECTION D
Upon the effective date of this restatement, each presently
issued and outstanding share of the Common Stock of this
Corporation has a par value of $.625 per share of Common Stock.
3. PROVISIONS APPLICABLE TO CERTAIN BUSINESS COMBINATIONS
3.01 The affirmative vote of the holders of not less than 80
percent of the outstanding shares of Common Stock of the
Corporation shall be required for the approval or authorization of
any "Business Combination" (as hereinafter defined) of the
Corporation with any "Substantial Shareholder" (as hereinafter
defined); provided, however, that such 80 percent voting
requirement shall not be applicable if:
(i) Such Business Combination was approved by at least
two-thirds of the "Continuing Directors" (as hereinafter defined)
of the Board of Directors of the Corporation; or
(ii) The Cash or fair market value (as determined by at
least two-thirds of the Continuing Directors) of the property,
securities or other consideration to be received per share by
holders of the Common Stock of the Corporation in such Business
Combination is not less than the "Highest Per Share Price" (as
hereinafter defined) paid by the Substantial Shareholder in
acquiring any of its holdings of the Corporation's Common Stock.
3.02 For purposes of this paragraph 3 of Restated Article R-V:
(i) The term "Business Combination" shall include, without
limitation, (a) any merger or consolidation of the Corporation, or
any entity controlled by or under common control with the
Corporation, with or into any Substantial Shareholder, or any
entity controlled by or under common control with the Substantial
Shareholder, (b) any merger or consolidation of a Substantial
Shareholder, or any entity controlled by or under common control
with the Substantial Shareholder, with or into the Corporation or
any entity controlled by or under common control with the
Corporation, (c) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, (in one transaction or a series of
transactions) of all or substantially all of the property and
assets of the Corporation, or any entity controlled by or under
common control with the Corporation, to a Substantial Shareholder,
or any entity controlled by or under common control with the
Substantial Shareholder, (d) any purchase, lease, exchange,
mortgage, pledge, transfer or other acquisition (in one transaction
or a series of transactions) of all or substantially all of the
property and assets of a Substantial Shareholder or any entity
controlled by or under common control with the Substantial
Shareholder, by the Corporation, or any entity controlled by or
under common control with the Corporation, (e) any recapitalization
of the Corporation that would have the effect of increasing the
proportionate voting power of a Substantial Shareholder, and (f)
any agreement, contract or other arrangement providing for any of
the transactions described in this definition of Business
Combination.
(ii) The Term "Substantial Shareholder" shall mean and include
any individual, corporation, partnership or other person or entity
which, together with its "Affiliates" and "Associates" (as defined
in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934 as in effect at the date of the
adoption of this Article by the shareholders of the Corporation
(collectively, and as so in effect, the "Exchange Act")),
"Beneficially Owns" (as defined in Rule 13d-3 of the Exchange Act)
in the aggregate 10 percent or more of the outstanding Common Stock
of the Corporation, and any Affiliate or Associate of any such
individual, corporation, partnership or other person or entity.
(iii) Without limitation, any share of Common Stock of the
Corporation that any Substantial Shareholder has the right to
acquire at any time (notwithstanding that Rule 13d-3 deems such
shares to be beneficially owned only if such right may be exercised
within 60 days) pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise, shall be
deemed to be Beneficially Owned by the Substantial Shareholder and
to be outstanding for purposes of clause (ii) above.
(iv) For the purposes of subparagraph 3.01 (ii) of this
paragraph 3 of Article R-V, the term "other consideration to be
received" shall include, without limitation, Common Stock or other
capital stock of the Corporation retained by its existing
stockholders other than Substantial Shareholders or other parties
to such Business Combination in the event of a Business Combination
in which the Corporation is the surviving corporation.
(v) The term "Continuing Director" shall mean a Director who
was a member of the Board of Directors of the Corporation
immediately prior to the time that the Substantial Shareholder
involved in a Business Combination became a Substantial
Shareholder.
(vi) A Substantial Shareholder shall be deemed to have
acquired a share of the Common Stock of the Corporation at the time
when such Substantial Shareholder became the Beneficial Owner
thereof. With respect to the shares owned by Affiliates,
Associates or other persons whose ownership is attributed to a
Substantial Shareholder under the foregoing definition of
Substantial Shareholder, if the price paid by such Substantial
Shareholder for such shares is not determinable by a majority of
the Continuing Directors, the price so paid shall be deemed to be
the higher of (a) the price paid upon the acquisition thereof by
the Affiliate, Associate or other person or (b) the closing market
price per share on the New York Stock Exchange on the date when the
Substantial Shareholder became the Beneficial Owner thereof.
(vii) The term "Highest Per Share Price" as used in this
paragraph 3 shall mean the highest price that can be determined to
have been paid at any time by the Substantial Shareholder for any
share or shares of Common Stock. In determining the Highest Per
Share Price all purchases by the Substantial Shareholder shall be
taken into account regardless of whether the shares were purchased
before or after the Substantial Shareholder became a Substantial
Shareholder. The Highest Per Share Price shall include any
brokerage commissions, transfer taxes and soliciting dealers' fees
paid by the Substantial Shareholder with respect to the shares of
common stock of the Corporation acquired by the Substantial
Shareholder. In the case of any Business Combination with a
Substantial Shareholder, the Continuing Directors shall determine
the Highest Per Share Price.
3.03 The provisions set forth in this paragraph 3 may not be
amended, altered, changed or repealed in any respect unless such
action is approved by the affirmative vote of the holders of not
less than 80 percent of the outstanding shares of common stock of
the Corporation at a meeting of the shareholders duly called for
the consideration of such amendment, alteration, change or repeal.
RESTATED ARTICLE R-VI
The class and number of shares issued on the date of adoption
of this Restatement of the Articles of Incorporation and the stated
capital and paid-in surplus as of such date were:
Stated Capital
Series Number of Par with respect
Class (if any) Shares Value thereto
Preferred Shares Issuable in 0 $.50 $0
Series
Common None 123,070,536 $.625 $76,919,000
Paid-in Surplus None
Total Stated Capital and Paid-in Surplus $76,919,000
RESTATED ARTICLE R-VII
The foregoing Restated Articles R-I to R-VI, and Restated
Article R-VIII and the Statement of Resolutions Establishing Series
described below, are a restatement of the Articles of Incorporation
of Walgreen Co., effective as of the date of issuance of the
Certificate of Amendment of Articles of Incorporation by the
Secretary of State, and shall from that time supersede and stand in
lieu of the corporation's Articles of Incorporation. This
Restatement is intended to solely restate the preexisting Articles
of Incorporation of Walgreen Co., without affecting any substantive
change or amendment to the corporation's Articles of Incorporation.
RESTATED ARTICLE R-VIII
The Directors of the Corporation shall not be liable to the
Corporation or to the shareholders of the Corporation for monetary
damages for breach of fiduciary duties as a Director, provided that
this provision shall not eliminate or limit the liability of the
Director (i) for any breach of the Director's duty of loyalty to
the Corporation or its shareholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing
violation of the law, (iii) under Section 8.65 of the Illinois
Business Corporation Act or (iv) for any transaction from which the
Director derived an improper personal benefit.
STATEMENT OF RESOLUTIONS ESTABLISHING SERIES
Pursuant to the provisions of "The Business Corporation Act of
1983," the undersigned corporation hereby submits the following
Statement of Resolutions Establishing Series.
1. The name of the corporation is Walgreen Co. (the
"Corporation").
2. The Board of Directors on July 9, 1986 duly adopted the
following resolution establishing and designating one or more
series and fixing and determining the relative rights and
preferences thereof:
RESOLVED FURTHER, that pursuant to the authority vested in the
Board of Directors of this Corporation in accordance with the
provisions of its Restated Articles of Incorporation, as amended, a
series of Preferred Shares, $1.00 par value per share [$.50 par
value as of January 10, 1991], of the Corporation (the "Preferred
Shares") be, and it hereby is, created, and that the designation
and amount thereof, and the voting powers, preferences and
relative, participating, optional and other special rights of the
shares of such series, and the qualifications, limitations or
restrictions thereof, are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Junior Participating Preferred, Series A"
(the "Series A Preferred") and the number of shares constituting
such series shall be 615,530 [1,231,060 as of January 10, 1991].
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the
holders of any series of Preferred Shares ranking prior and
superior to the shares of Series A Preferred with respect to
dividends, the holders of shares of Series A Preferred, in
preference to the holders of Common Shares, $.625 par value per
share, of the Corporation (the "Common Shares") and of any other
shares ranking junior as to dividends to the Series A Preferred,
shall be entitled to receive, when, as and if declared by the Board
of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the twelfth day of
September, December, March and June in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A
Preferred, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $0.25 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Common Shares or a
subdivision of the outstanding Common Shares (by reclassification
or otherwise), declared on the Common Shares since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Preferred. In the
event the Corporation shall at any time declare or pay any dividend
on Common Shares payable in Common Shares, or effect a subdivision
or combination or consolidation of the outstanding Common Shares
(by reclassification or otherwise than by payment of a dividend in
Common Shares) into a greater or lesser number of Common Shares,
then in each such case the amount to which holders of shares of
Series A Preferred were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event
and the denominator of which is the number of Common Shares that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred as provided in paragraph (A)
of this Section immediately after it declares a dividend or
distribution on the Common Shares (other than a dividend payable in
Common Shares); provided that, in the event no dividend or
distribution shall have been declared on the Common Shares during
the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $0.25 per
share on the Series A Preferred shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred from the Quarterly
Dividend Payment Date next preceding the date of issue of such
shares of Series A Preferred, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to
accrue and be cumulative from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is
a date after the record date for the determination of holders of
shares of Series A Preferred entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of
Series A Preferred entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred shall have the following voting rights:
(A) Each share of Series A Preferred shall entitle the
holder thereof to one vote on all matters submitted to a vote of
the shareholders of the Corporation.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Preferred and the holders of Common
Shares shall vote together as one class on all matters submitted to
a vote of shareholders of the Corporation.
(C) Except as set forth herein, holders of Series A
Preferred shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to
vote with holders of Common Shares as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred as provided in
Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A Preferred outstanding shall have been paid in
full, the Corporation shall not:
(i) declare or pay dividends on, or make any other
distributions on, any shares ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Preferred;
(ii) declare or pay dividends on or make any other
distributions on any shares ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred, except dividends paid ratably on the Series A
Preferred and all such parity stock on which dividends are payable
or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled.
(iii) redeem or purchase or otherwise acquire
for consideration shares ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred, provided that the Corporation may at any time redeem,
purchase or otherwise acquire any such junior shares in exchange
for any shares of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Preferred, or any shares ranking on a parity
with the Series A Preferred, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as to
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration
any shares of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued Preferred Shares and may be reissued
as part of a new series of Preferred Shares to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares ranking
junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred unless, prior thereto, the
holders of shares of Series A Preferred shall have received $100
per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such
payment, provided that the holders of shares of Series A Preferred
shall be entitled to receive an aggregate amount per share, subject
to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders
of Common Shares, or (2) to the holders of shares ranking on a
parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred, except distributions made
ratably on the Series A Preferred and all other such parity stock
in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding
up. In the event the Corporation shall at any time declare or pay
any dividend on Common Shares payable in Common Shares, or effect a
subdivision or combination or consolidation of the outstanding
Common Shares (by reclassification or otherwise than by payment of
a dividend in Common Shares) into a greater or lesser number of
Common Shares, then in each such case the aggregate amount to which
holders of shares of Series A Preferred were entitled immediately
prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination
or other transaction in which the Common Shares are exchanged for
or changed into other shares or securities, cash and/or any other
property, then in any such case the shares of Series A Preferred
then outstanding shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate
amount of shares, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each
Common Share is changed or exchanged. In the event the Corporation
shall at any time declare or pay any dividend on Common Shares
payable in Common Shares, or effect a subdivision or combination or
consolidation of the outstanding Common Shares (by reclassification
or otherwise) into a greater or lesser number of Common Shares,
then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series
A Preferred shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of
which is the number of Common Shares that were outstanding
immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
shall not be redeemable.
Section 9. Rank. The Series A Preferred shall rank junior to
all other series of the Preferred Shares, as to the payment of
dividends and the distribution of assets, unless the terms of such
other series specifies to the contrary.
Section 10. Amendment. The Restated Certificate of
Incorporation, as amended, of the Corporation shall not be amended
in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred so as to
affect them adversely without the affirmative vote of the holders
of two-thirds of the outstanding shares of Series A Preferred,
voting together as a single class.
EXHIBIT 13
<TABLE>
ELEVEN-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
Walgreen Co. and Subsidiaries
(Dollars in Thousands, except per share data)
<CAPTION>
FISCAL YEAR 1994 1993 1992 1991
<S> <C> <C> <C> <C>
NET SALES $9,234,978 $8,294,840 $7,474,961 $6,733,044
COSTS AND DEDUCTIONS
Cost of sales 6,614,445 5,959,002 5,377,738 4,829,186
Selling, occupancy and
administration 2,164,889 1,929,630 1,738,770 1,582,725
Other (income) expense (1) (2,777) 6,532 5,448 9,189
Total Costs and Deductions 8,776,557 7,895,164 7,121,956 6,421,100
EARNINGS
Earnings before income tax
provision and cumulative
effect of accounting changes 458,421 399,676 353,005 311,944
Income tax provision 176,492 154,387 132,377 116,979
Earnings before cumulative
effect of accounting
changes 281,929 245,289 220,628 194,965
Cumulative effect of accounting
changes (2) - (23,623) - -
Net Earnings $ 281,929 $ 221,666 $ 220,628 $ 194,965
================================================================================
PER COMMON SHARE (3)
Earnings before cumulative
effect of accounting
changes $ 2.28 $ 1.98 $ 1.78 $ 1.58
Net Earnings (2) 2.28 1.79 1.78 1.58
Dividends Declared .68 .60 .52 .46
Book Value 12.79 11.20 10.02 8.78
================================================================================
NON-CURRENT LIABILITIES
Long-term debt $ 1,790 $ 6,210 $ 18,749 $ 122,960
Deferred income taxes 173,649 173,343 198,428 175,592
Other non-current liabilities 108,981 93,380 33,798 31,131
================================================================================
ASSETS AND EQUITY
Total Assets $2,908,749 $2,535,191 $2,373,550 $2,094,637
================================================================================
Shareholders' Equity $1,573,640 $1,378,751 $1,233,310 $1,081,157
================================================================================
Return on Average Shareholders'
Equity (2) 19.1% 17.0% 19.1% 19.2%
================================================================================
________________________________________________________________________________
<FN>
(1) Fiscal 1993 includes the $6,821,000 costs from the early redemption of the
company's $100 million 9 1/2% sinking fund debentures, due 2016. Fiscal
1991 includes a $4,118,000 loss from the closing of the company's Memphis,
Tennessee, distribution center. Fiscal 1989 includes a $6,114,000 loss on
sale of manufacturing operations. Fiscal 1984 includes gain on sale of
equity investments in Mexican operations.
(2) In 1993, the company adopted two Statements of Financial Accounting
Standards, No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and No. 109 "Accounting for Income Taxes."
(3) Per share data have been adjusted for two-for-one stock splits in 1991 and
1985.
</TABLE>
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
<C> <C> <C> <C> <C> <C> <C>
$6,047,494 $5,380,133 $4,883,520 $4,281,606 $3,660,553 $3,161,935 $2,744,625
4,356,392 3,848,546 3,468,973 3,000,988 2,550,072 2,192,367 1,900,703
1,406,922 1,278,116 1,190,295 1,069,859 914,003 791,697 691,139
3,257 9,632 15,282 16,576 8,852 4,171 (2,003)
5,766,571 5,136,294 4,674,550 4,087,423 3,472,927 2,988,235 2,589,839
280,923 243,839 208,970 194,183 187,626 173,700 154,786
106,346 89,597 79,908 90,646 84,489 79,531 69,340
174,577 154,242 129,062 103,537 103,137 94,169 85,446
- - - - - - -
$ 174,577 $ 154,242 $ 129,062 $ 103,537 $ 103,137 $ 94,169 $ 85,446
============================================================================
$ 1.41 $ 1.25 $ 1.05 $ .84 $ .84 $ .77 $ .70
1.41 1.25 1.05 .84 .84 .77 .70
.40 .34 .30 .27 .25 .22 .18
7.70 6.69 5.79 5.06 4.50 3.92 3.38
============================================================================
$ 146,740 $ 150,121 $ 172,111 $ 141,433 $ 136,158 $ 44,336 $ 24,472
156,364 133,077 115,946 105,118 91,721 72,547 52,909
30,942 29,584 27,807 30,419 26,764 27,604 28,725
============================================================================
$1,913,584 $1,681,079 $1,511,880 $1,361,936 $1,197,082 $ 961,938 $ 840,803
============================================================================
$ 947,249 $ 823,401 $ 712,644 $ 622,328 $ 553,611 $ 480,974 $ 414,618
============================================================================
19.7% 20.1% 19.3% 17.6% 19.9% 21.0% 22.3%
============================================================================
____________________________________________________________________________
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The company achieved its twentieth consecutive year of record sales and
earnings in fiscal 1994. Net earnings for this year were $282 million or $2.28
per share. This represented a 14.9% increase over fiscal 1993 earnings before
the cumulative effect of last year's accounting changes for postretirement
benefits and income taxes. Earnings increases resulted from higher sales and
improved gross margins. In addition, earnings comparisons benefited from last
year's $6.8 million early redemption costs for the $100 million 9 1/2% sinking
fund debentures and the resulting $1.8 million lower net interest expense.
Sales rose 11.3% to $9.23 billion in fiscal 1994 compared to 11.0% increases
in 1993 and 1992. Drugstore sales increases resulted from sales gains in
existing stores and added sales from new stores, which include an indeterminate
amount of market driven price changes. Sales in comparable stores (those open
at least one year) were up 5.5% in 1994, 6.3% in 1993 and 7.5% in 1992. New
stores accounted for 7.4% of the sales gains in 1994, 6.2% in 1993 and 4.6% in
1992. The company operated 1,968 drug stores as of August 31, 1994, compared to
1,836 a year earlier.
Pharmacy sales increased 18.9% in 1994, 15.7% in 1993 and 16.2% in 1992.
Prescription sales were 40.8% of total sales for fiscal 1994 compared to 38.2%
in 1993 and 36.7% in 1992. Pharmacy sales trends are expected to continue.
Trends include the aging population, the continued development of new drugs and
the country's movement toward managed care. The company is in a position to
benefit from these changes because of its large national store base and
Healthcare Plus, the company's mail service subsidiary.
Gross margins increased to 28.4% of sales from 28.2% last year and 28.1% in
fiscal 1992. Third party prescription business continued to negatively affect
pharmacy gross margins. This was more than offset by improved gross margins in
the rest of the store. Additional emphasis is being placed on minimum third
party profitability standards. Cash business should not subsidize unprofitable
third party plans. The company uses the last-in, first-out (LIFO) method of
inventory valuation; therefore, the sales and cost of sales are both in "current
dollars" which more fairly represent current gross margins. However, year to
year comparisons still contain an inflation factor. In the last few years
inflation has slowed. This means comparisons between years for sales, cost of
sales and gross margins are more representative of real volume growth.
The effective LIFO inflation rates were .3% in 1994, 2.1% in 1993 and 2.8%
in 1992, which resulted in charges to cost of sales of $5.1 million in 1994,
$28.1 million in 1993 and $34.9 million in 1992. Inflation on prescription
inventory dropped to 2.8% in fiscal 1994 from 4.4% in 1993 and 6.3% in 1992.
Excluding prescriptions, the remaining inventory experienced slight deflation
during fiscal 1994.
Selling, occupancy and administration expenses were 23.4% of sales in fiscal
1994 and 23.3% of sales in fiscal 1993 and 1992. The fiscal 1994 increase, as a
percent to sales, was caused by higher store salaries, insurance costs and costs
associated with closing retail locations. The higher store salaries are
partially due to the accelerated pace of new store openings. In fiscal 1993
decreases in advertising expense and improved bad debt experience were offset by
higher store salaries and store closing costs. Store closing costs increased as
a result of 64 store closings in fiscal 1994, 49 store closings in fiscal 1993,
and 38 in 1992. Fiscal 1993 expenses also include an additional charge of $4.2
million ($.02 per share) for the current year effect of the accounting change
for postretirement benefits.
The fiscal 1994 decrease in interest income resulted from lower investment
levels while the 1993 decrease resulted from lower investment levels and
interest rates. Average net investment levels were approximately $105 million
in 1994, $138 million in 1993, and $177 million in 1992. Fiscal 1993 other
expense was affected by the early redemption of the company's $100 million 9
1/2% sinking fund debentures which cost the company $6.8 million ($.03 per
share). This reduced interest expense by $6.7 million in 1993 and $9.5 million
per year thereafter.
The fiscal 1994 effective tax rate was 38.5% compared to 38.6% in 1993 and
37.5% in 1992. The increase in rates in fiscal 1994 and 1993 compared to 1992
was due to the 1% increase in the federal income tax effective January 1, 1993.
FINANCIAL CONDITION
Cash and cash equivalents and marketable securities were $108 million at
August 31, 1994, compared to $121 million at August 31, 1993. Short-term
investment objectives are to maximize yields while minimizing risk and
maintaining liquidity. To attain these objectives, investment limits are placed
on the amount, type, and issuer of securities.
Net cash provided by operating activities increased $49 million compared to
the same period a year ago, primarily due to increased earnings. The company's
ongoing profitability is expected to continue supporting expansion and
remodeling programs, dividends to shareholders and the funding for various
technological improvements.
Net cash used for investing activities was $283 million for fiscal 1994
versus $161 million last year. Additions to property and equipment were $290
million compared to $185 million last year. During 1994, 194 stores opened and
two were acquired, making this the largest growth year ever. This compares to
149 stores opened in the same period last year. Planned capital expenditures
for fiscal 1995 are expected to be in excess of $300 million.
The company expects to open 200 or more new stores annually for the next
five years, with the goal of operating 3,000 stores by the year 2000. The
company recently entered the Cleveland/Akron/Canton market with plans to have 15
stores open by Thanksgiving and expects to open four to five stores in Buffalo
by Christmas. In the next three years, 25 to 30 stores are expected to open in
Philadelphia, the first of which will open in the fall of 1995. The company
intends to enter the Seattle/Tacoma market in fiscal 1996. A multi-million
dollar project called Intercom Plus has begun. This system, which is a
re-engineering of the prescription filling process, is designed to improve
productivity and patient service. Store implementation is scheduled to begin in
Spring 1995. The company plans to open a new mail service facility in Tempe,
Arizona, in November. An eighth major distribution center will open in fiscal
1995 near Sacramento, California, to serve the growing store base in the western
United States.
Net cash used for financing activities was $86 million for fiscal 1994
compared to $198 million in fiscal 1993, which included the redemption of $100
million in debentures. At August 31, 1994, the company had $124 million in
unused bank lines of credit and $100 million of unissued authorized debt
securities, previously filed with the Securities and Exchange Commission. In
addition, the company has the ability to borrow up to $99 million against
corporate-owned life insurance policies.
There are no accounting standards issued that have not been adopted which
would have a material impact on the company's financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Walgreen Co. and Subsidiaries
For the Years Ended August 31, 1994, 1993 and 1992
(Dollars in Thousands, except per share data)
________________________________________________________________________________
EARNINGS 1994 1993 1992
NET SALES $9,234,978 $8,294,840 $7,474,961
COSTS AND DEDUCTIONS
Cost of sales 6,614,445 5,959,002 5,377,738
Selling, occupancy and administration 2,164,889 1,929,630 1,738,770
8,779,334 7,888,632 7,116,508
OTHER (INCOME) EXPENSE
Interest income (5,363) (6,743) (10,222)
Interest expense 2,586 6,454 15,670
Debt redemption costs - 6,821 -
(2,777) 6,532 5,448
EARNINGS
Earnings before income tax provision
and cumulative effect of accounting
changes 458,421 399,676 353,005
Income tax provision 176,492 154,387 132,377
Earnings before cumulative effect of
accounting changes 281,929 245,289 220,628
Cumulative effect of accounting changes - (23,623) -
Net earnings $ 281,929 $ 221,666 $ 220,628
===============================================================================
_______________________________________________________________________________
NET EARNINGS PER
COMMON SHARE
Earnings before cumulative effect of
accounting changes $ 2.28 $ 1.98 $ 1.78
Cumulative effect of accounting changes - (.19) -
Net earnings $ 2.28 $ 1.79 $ 1.78
===============================================================================
_______________________________________________________________________________
RETAINED EARNINGS 1994 1993 1992
Balance, beginning of year $1,301,832 $1,156,391 $1,004,238
Net earnings 281,929 221,666 220,628
Cash dividends declared:
$.68 per share in 1994,
$.60 in 1993 and $.52 in 1992 (83,688) (73,843) (63,997)
Employee stock purchase and
option plans (3,352) (2,382) (4,478)
Balance, end of year $1,496,721 $1,301,832 $1,156,391
================================================================================
________________________________________________________________________________
The accompanying Statement of Major Accounting Policies and the
Notes to Consolidated Financial Statements are integral parts of
these statements.
CONSOLIDATED BALANCE SHEETS
Walgreen Co. and Subsidiaries
At August 31, 1994 and 1993
(Dollars in Thousands)
________________________________________________________________________________
ASSETS 1994 1993
CURRENT ASSETS
Cash and cash equivalents $ 77,915 $ 91,597
Marketable securities at cost, which approximates market 30,510 29,695
Accounts receivable, net of allowances for doubtful
accounts of $21,601 in 1994 and $23,050 in 1993 193,930 139,313
Inventories 1,263,400 1,094,035
Other current assets 107,056 108,493
Total Current Assets 1,672,811 1,463,133
NON-CURRENT ASSETS
Property and equipment, at cost, less accumulated
depreciation and amortization 1,085,487 927,333
Other non-current assets 150,451 144,725
TOTAL ASSETS $2,908,749 $2,535,191
================================================================================
________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY____________________________________________
CURRENT LIABILITIES
Trade accounts payable $ 532,816 $ 427,185
Accrued expenses and other liabilities 495,498 434,640
Income taxes 22,375 21,682
Total Current Liabilities 1,050,689 883,507
NON-CURRENT LIABILITIES
Deferred income taxes 173,649 173,343
Other non-current liabilities 110,771 99,590
Total Non-Current Liabilities 284,420 272,933
SHAREHOLDERS' EQUITY
Preferred stock, $.50 par value; authorized
4,000,000 shares; none issued - -
Common stock, $.625 par value; authorized 400,000,000
shares; issued and outstanding 123,070,536 in 1994
and 1993, at stated value 76,919 76,919
Retained earnings 1,496,721 1,301,832
Total Shareholders' Equity 1,573,640 1,378,751
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,908,749 $2,535,191
================================================================================
________________________________________________________________________________
The accompanying Statement of Major Accounting Policies and the Notes to
Consolidated Financial Statements are integral parts of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Walgreen Co. and Subsidiaries
For the Years Ended August 31, 1994, 1993 and 1992
(Dollars in Thousands)
_______________________________________________________________________________
FISCAL YEAR 1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 281,929 $ 221,666 $ 220,628
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Cumulative effect of accounting
changes - 23,623 -
Depreciation and amortization 118,118 104,660 92,109
Deferred income taxes 5,653 (12,645) 11,158
Other 7,880 (1,772) (719)
Changes in current assets and
liabilities -
Inventories (169,365) (99,867) (82,173)
Trade accounts payable 105,631 15,502 46,143
Accrued expenses and other
liabilities 59,507 70,767 52,737
Accounts receivable, net (50,692) (7,427) (3,079)
Other current assets (3,910) (7,814) (3,095)
Income taxes 693 184 4,802
Net cash provided by operating activities 355,444 306,877 338,511
CASH (USED FOR) PROVIDED BY
INVESTING ACTIVITIES
Additions to property and equipment (289,976) (184,674) (144,943)
Investment in corporate-owned life
insurance (6,445) (35,981) (27,153)
Proceeds from disposition of property
and equipment 13,704 8,973 5,837
Net (purchases) sales of marketable
securities (815) 51,349 (17,918)
Other 444 (1,078) (8,941)
Net cash used for investing activities (283,088) (161,411) (193,118)
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
Cash dividends paid (81,226) (71,382) (62,151)
Payments of long-term obligations (5,760) (112,053) (5,582)
Proceeds from (purchases for) employee
stock plans 4,300 (12,592) (653)
Cost of employee stock purchase and
option plans (3,352) (2,382) (4,478)
Net cash used for financing activities (86,038) (198,409) (72,864)
CHANGES IN CASH AND CASH EQUIVALENTS
Net (decrease) increase in cash and
cash equivalents (13,682) (52,943) 72,529
Cash and cash equivalents at
beginning of year 91,597 144,540 72,011
Cash and cash equivalents at
end of year $ 77,915 $ 91,597 $ 144,540
===============================================================================
_______________________________________________________________________________
The accompanying Statement of Major Accounting Policies and the Notes to
Consolidated Financial Statements are integral parts of these statements.
STATEMENT OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated statements include the accounts of the company and all
majority-owned subsidiaries. All significant intercompany transactions have
been eliminated.
ACCOUNTING CHANGES
In fiscal 1993 the company adopted two Statements of Financial Accounting
Standards. SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," requires accrual of the present value of the expected cost
of retiree medical and life insurance benefits to the date of first eligibility.
Previously, the cost was recognized on a cash basis. SFAS No. 109, "Accounting
for Income Taxes," requires the adjustment of deferred and current income tax
assets and liabilities to reflect current tax rates rather than tax rates in
effect at the time the assets and liabilities arose. The company reported the
cumulative effect on prior years of the changes as a $23,623,000 ($.19 per
share) charge in fiscal 1993.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid investments
with an original maturity of three months or less. All other temporary
investments are classified as marketable securities.
The company's cash management policy provides for the bank disbursement
accounts to be reimbursed on a daily basis. Checks issued but not presented to
the banks for payment of $88,000,000 and $77,000,000 at August 31, 1994 and
1993, respectively, are included in cash and cash equivalents as reductions of
other cash balances.
FINANCIAL INSTRUMENTS
The company had approximately $20,000,000 and $27,000,000 of outstanding letters
of credit at August 31, 1994 and 1993, respectively, which guaranteed foreign
trade purchases. Additional outstanding letters of credit of $49,000,000 at
August 31, 1994 and $27,000,000 at August 31, 1993 were related to insurance
activities. As of August 31, 1994 and 1993, there were no investments in
derivative financial instruments.
INVENTORIES
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market
basis. At August 31, 1994 and 1993, inventories would have been greater by
$393,568,000 and $388,464,000, respectively, if they had been valued on a lower
of first-in, first-out (FIFO) cost or market basis. Cost of sales is primarily
computed on an estimated basis and adjusted based on periodic inventories.
PROPERTY AND EQUIPMENT
Depreciation is provided on a straight-line basis over the estimated useful
lives of owned assets. Leasehold improvements and leased properties under
capital leases are amortized over the estimated physical life of the property or
over the term of the lease, whichever is shorter. Major repairs which extend
the useful life of an asset are capitalized in the property and equipment
accounts. Routine maintenance and repairs are charged against earnings. The
composite method of depreciation is used for equipment; therefore, gains and
losses on retirement or other disposition of such assets are included in
earnings only when an operating location is closed or completely remodeled.
Fully depreciated property and equipment are removed from the cost and related
accumulated depreciation and amortization accounts.
Property and equipment consists of (In Thousands):_____________________________
1994 1993
Land and land improvements $ 78,118 $ 47,539
Buildings and building improvements 498,673 423,659
Equipment 909,187 821,532
Capitalized systems development costs 87,885 63,429
Capital lease properties 23,378 24,329
1,597,241 1,380,488
Less: accumulated depreciation and amortization 511,754 453,155
$1,085,487 $ 927,333
===============================================================================
The company capitalizes significant systems development costs. These costs are
amortized over a five-year period as phases of these systems are implemented.
Unamortized costs as of August 31, 1994 and 1993, were $66,303,000 and
$50,748,000, respectively. Amortization of these costs were $8,901,000,
$5,712,000 and $3,089,000 in 1994, 1993 and 1992, respectively.
INCOME TAXES
The company provides for federal and state income taxes on items included in the
Consolidated Statements of Earnings regardless of the period when such taxes are
payable. Deferred taxes are recognized for temporary differences between
financial and income tax reporting based on enacted tax laws and rates.
RETIREMENT BENEFITS
The principal retirement plan for employees is the Walgreen Profit-Sharing
Retirement Trust, to which both the company and the employees contribute. The
company's contribution, which is determined annually at the discretion of the
Board of Directors, has historically related to pretax income. The
profit-sharing provision was $37,683,000 in 1994, $35,119,000 in 1993 and
$31,525,000 in 1992.
The company provides certain health and life insurance benefits for retired
employees who meet eligibility requirements, including age and years of service.
The costs of these benefits are accrued over the period earned. The company's
postretirement benefit plans currently are not funded.
The company has deferred compensation plans which permit directors and
certain management employees the right to defer a portion of their compensation.
The participants earn interest on deferred amounts depending on various factors
defined in the plans. Although not linked to the plans, the company has
purchased life insurance on the participants and other key employees to fund the
distributions under these and other benefit plans.
NET EARNINGS PER COMMON SHARE
Primary net earnings per share were computed using weighted average number of
shares and common share equivalents outstanding of 123,646,229 in 1994,
123,769,774 in 1993 and 123,670,748 in 1992. Fully diluted net earnings per
share are the same as primary net earnings per share.
PER-OPENING EXPENSES
Non-capital expenditures incurred prior to the opening of a new or remodeled
store are charged against earnings when they are incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred, and were $93,467,000 in 1994,
$88,102,000 in 1993 and $85,270,000 in 1992.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTEREST EXPENSE
The company capitalized $482,000, $394,000 and $484,000 of interest expense as
part of significant construction projects during fiscal 1994, 1993 and 1992,
respectively. Interest paid, net of amounts capitalized, was $1,954,000 in
1994, $9,950,000 in 1993 and $13,059,000 in 1992.
DEBT REDEMPTION COSTS
The fiscal 1993 costs of $6,821,000 ($.03 per share) resulted from the early
redemption of the company's $100 million 9 1/2% sinking fund debentures, due
2016. The costs to redeem the debt were not reflected as an extraordinary item
because they were not material.
LEASES
The company generally operates in leased premises. Original non-cancelable
lease terms typically range from 10 to 20 years and may contain escalation
clauses, along with options that permit renewals for additional periods. The
total amount of the minimum rent is expensed on a straight-line basis over the
term of the lease. In addition to minimum fixed rentals, most leases provide
for contingent rentals based upon sales.
Minimum rental commitments at August 31, 1994, under all leases having an
initial or remaining non-cancelable term of more than one year are shown below
(In Thousands):_________________________________________________________________
YEAR____________________________________________________________________________
1995 $ 239,431
1996 255,628
1997 250,379
1998 241,820
1999 233,841
Later 2,282,053
Total minimum lease payments $3,503,152
================================================================================
The above minimum lease payments include minimum rental commitments related to
capital leases amounting to $18,969,000 at August 31, 1994. The present value
of net minimum capital lease payments, due after 1995, are reflected in the
accompanying Consolidated Balance Sheets as part of other non-current
liabilities. Total minimum lease payments have not been reduced by minimum
sublease rentals of approximately $12,002,000 on leases due in the future under
non-cancelable subleases.
Rental expense was as follows (In Thousands):___________________________________
1994 1993 1992_
Minimum rentals $242,637 $214,537 $192,072
Contingent rentals 34,107 35,052 35,090
Less: Sublease rental income (2,707) (3,246) (3,321)
$274,037 $246,343 $223,841
================================================================================
INCOME TAXES
The provision for income taxes consists of the following (In Thousands):________
1994 1993 1992_
Current provision -
Federal $145,381 $133,562 $105,551
State 25,458 33,470 15,668
170,839 167,032 121,219
Deferred provision -
Federal 3,881 (3,903) 6,316
State 1,772 (8,742) 4,842
5,653 (12,645) 11,158
$176,492 $154,387 $132,377
================================================================================
The components of the deferred provision were (In Thousands):___________________
1994 1993 1992_
Accelerated depreciation $ 20,756 $ 17,192 $ 23,537
Insurance (2,763) (14,061) (278)
Employee benefit plans (5,767) (6,518) (3,430)
Other (6,573) (9,258) (8,671)
$ 5,653 $(12,645) $ 11,158
================================================================================
The deferred tax assets and liabilities included in the Consolidated Balance
Sheet as of August 31, 1994, consists of the following (In Thousands):
ASSETS LIABILITIES TOTAL
Current -
Insurance $ 35,886 $ - $ 35,886
Employee benefit plans 23,898 (12,274) 11,624
Allowances for doubtful accounts 8,841 - 8,841
Inventory 9,938 (22,625) (12,687)
Other 27,727 (6,689) 21,038
106,290 (41,588) 64,702
Non-current -
Accelerated depreciation - (231,738) (231,738)
Employee benefit plans 13,475 - 13,475
Postretirement benefits 26,039 - 26,039
Other 18,921 (346) 18,575
58,435 (232,084) (173,649)
$164,725 $(273,672) $(108,947)
================================================================================
Income taxes paid were $170,146,000, $166,848,000 and $116,417,000 during the
fiscal years ended August 31, 1994, 1993 and 1992, respectively. The difference
between the statutory income tax rate and the effective tax rate is principally
due to state income tax provisions.
SHORT-TERM BORROWINGS
At August 31, 1994, the company had approximately $124,000,000 of available bank
lines of credit. The credit lines are renewable annually at various dates and
provide for loans of varying maturities at the prime rate. There are no
compensating balance arrangements.
During fiscal 1994 the company did obtain funds through the placement of
commercial paper. The average amount outstanding during the year was $2,011,000
at a weighted average interest rate of 3.3%. The largest month-end balance was
$12,977,000 at November 30, 1993. All commercial paper borrowings were repaid
by fiscal year-end. There were no short-term borrowings during fiscal 1993 or
1992.
CONTINGENCIES
The company is involved in various legal proceedings incidental to the normal
course of business. These include one group of product liability claims and a
patent infringement suit. The company has secured an indemnification under
which over 80% of the product liability claims have been settled without the
company being required to make any payments. On October 20, 1994, a judgment of
$11.3 million was entered in a patent infringement suit against the company and
its co-defendant supplier. Additionally, the plaintiff has entered a motion for
damages to be trebled. The company has secured an indemnification agreement
from its supplier for the full amount of any damages which might be finally
awarded. Management is of the opinion, with which its General Counsel concurs,
that the remaining product liability claims, the patent infringement suit, and
other legal proceedings will not have a material adverse effect on the company's
consolidated financial position or results of operations.
CAPITAL STOCK
The company's common stock is subject to a Rights Agreement under which each
such share has attached to it a Right to purchase one-two hundredth of a share
of a new series of Preferred Stock, at a price of $60.00 per Right, in the event
a person or group acquires or attempts to acquire 20% of the then outstanding
shares of the company. If the company is involved in a merger or other business
combination, the Rights will be modified to entitle the holder to buy a number
of common shares of the acquiring company at a market value of $120.00 for each
Right held. In the event that a person or group acquires 20% or more of the
outstanding common stock of the company (other than in certain instances as
defined in the Rights Agreement), each Right, except those of an Acquiring
Person, would entitle the holder to purchase a number of shares of the company's
common stock having a market value of $120.00 at a purchase price as defined in
the Rights Agreement. The Rights, which are non-voting, will expire on August
21, 1996, but may be redeemed by the company at a price of $.025 per Right at
any time prior to a public announcement that 20% or more of the company's common
stock has been acquired.
As of August 31, 1994, 15,116,298 shares of common stock were reserved for
future stock issuances under the company's employee stock purchase, option and
award plans. Preferred stock of 1,231,060 shares have been reserved for
issuance upon the exercise of Preferred Share Purchase Rights.
STOCK OPTION PLANS
The Walgreen Co. Executive Stock Option Plan provides for the granting to key
employees of options to purchase company common stock over a 10-year period, at
a price not less than the fair market value on the date of grant. Options may
be issued under the Plan until October 13, 2002, for an aggregate of 4,800,000
shares of common stock of the company. The number of shares available for
future grant was 1,976,375 and 2,084,429 at August 31, 1994 and 1993,
respectively. Options granted prior to July 13, 1988, must be exercised in
sequential order. After this date, options may be exercised in any order
provided they are not restricted by the three-year holding period.
The Walgreen Co. Stock Purchase/Option Plan (Share Walgreens) provides for
the granting of options to eligible employees upon the purchase of company
shares subject to certain restrictions. Under the terms of the plan, the option
price cannot be less than 85% of the fair market value at the date of the grant.
Compensation expense related to the plan was $986,000 and $787,000 in 1994 and
1993, respectively. Options may be issued under this plan until September 30,
2002, for an aggregate of 5,000,000 shares of common stock of the company. The
number of shares available for future grant was 3,878,063 and 3,931,310 at
August 31, 1994 and 1993, respectively. The options granted during 1994 and
1993 have a two-year holding period.
Stock option transactions in fiscal 1992, 1993 and 1994 are summarized as
follows:______________________________________________________________________
Per Share
Shares Option Price Exercisable
Outstanding August 31, 1991 1,397,285 $ 5.406-$34.375 1,237,899
Granted 241,103 33.25 - 38.00
Exercised (155,612) 5.406- 22.813_____________
Outstanding August 31, 1992 1,482,776 $ 5.406-$38.00 1,082,903
Granted 1,408,348 38.375- 40.375
Exercised (115,988) 5.406- 27.688
Cancelled (25,014) 9.75 - 38.50______________
Outstanding August 31, 1993 2,750,122 $ 8.406-$40.375 965,386
Granted 224,760 37.375- 41.75
Exercised (111,848) 8.406- 38.50
Cancelled and expired (35,269) 14.438- 39.50______________
Outstanding August 31, 1994 2,827,765 $12.344-$41.75 1,009,414
==============================================================================
POSTRETIREMENT BENEFITS
The components of postretirement benefit cost for fiscal 1994 and 1993 were as
follows (In Thousands):
1994 1993
Service costs - benefits earned during the year $2,859 $2,413
Interest cost on accumulated postretirement
benefit obligation 4,638 4,048
Amortization of unrecognized actuarial amount 271 -
Total postretirement benefit cost $7,768 $6,461
====== ======
The company's unfunded accumulated postretirement benefit liability at August
31, included in the Consolidated Balance Sheets were as follows (In Thousands):
1994 1993
Retirees $18,228 $17,078
Fully eligible active plan participants 11,244 10,997
Other active plan participants 41,390 32,710
Accumulated postretirement benefit obligation 70,862 60,785
Unrecognized actuarial amount (4,469) -
Accrued postretirement benefit liability $66,393 $60,785
======= =======
The accumulated postretirement benefit obligation was determined assuming the
discount rate was 8.0% and the healthcare cost trend rate was 7.0% for 1994;
with a gradual decline over a 15-year period to 4.5%. These trend rates reflect
the company's prior experience and management's expectation that future rates
will decline. The effect of a 1% increase each year in the projected healthcare
cost trend rate would increase the accumulated postretirement benefit obligation
at August 31, 1994 by $11,935,000 and the service and interest cost components
of the fiscal 1994 net periodic postretirement benefit cost by $1,576,000. The
unrecognized actuarial amount is being amortized over the average remaining
service period of active plan participants.
SUPPLEMENTARY FINANCIAL INFORMATION
Included in the Consolidated Balance Sheets captions are the following assets
and liabilities (In Thousands):_______________________________________________
1994 1993
Other current assets -
Deferred income tax charges $ 64,702 $ 70,049
Other 42,354 38,444
$107,056 $108,493
==============================================================================
Other non-current assets -
Cash surrender value of life insurance $122,172 $111,981
Employee loans 13,620 16,845
Real estate investment 8,576 9,874
Other 6,083 6,025
$150,451 $144,725
==============================================================================
Accrued expenses and other liabilities -
Accrued salaries $122,213 $110,356
Insurance 95,067 78,270
Taxes other than income taxes 59,071 50,137
Accrued rent 50,066 46,868
Profit sharing 49,904 45,223
Other 119,177 103,786
$495,498 $434,640
==============================================================================
Other non-current liabilities -
Postretirement benefit obligation $ 63,603 $ 58,323
Deferred compensation 24,223 24,562
Deferred income 12,020 -
Obligations under capital leases 9,135 10,495
Long-term debt, net of current maturities 1,790 6,210
$110,771 $ 99,590
==============================================================================
Long-term debt includes notes and other real estate obligations with interest
rates at 6.25%, 9.47% and prime. Annual maturities due on long-term debt are
$4,420,000, $640,000, $360,000, $385,000 and $405,000 for fiscal 1995
through 1999, respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WALGREEN CO.:
We have audited the accompanying consolidated balance sheets of Walgreen
Co. (an Illinois corporation) and Subsidiaries as of August 31, 1994 and
1993, and the related consolidated statements of earnings, retained
earnings and cash flows for each of the three years in the period ended
August 31, 1994. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Walgreen Co.
and Subsidiaries as of August 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1994 in conformity with generally accepted accounting
principles.
As indicated in the Statement of Major Accounting Policies, under
"Accounting Changes", effective September 1, 1992, the company changed its
method of accounting for postretirement benefits other than pensions and
income taxes.
Arthur Andersen LLP
Chicago, Illinois,
October 20, 1994
MANAGEMENT'S REPORT
The primary responsibility for the integrity and objectivity of the consolidated
financial statements and related financial data rests with the management of
Walgreen Co. The financial statements were prepared in conformity with
generally accepted accounting principles appropriate in the circumstances and
included amounts that were based on management's most prudent judgments and
estimates relating to matters not concluded by fiscal year-end. Management
believes that all material uncertainties have been either appropriately
accounted for or disclosed. All other financial information included in this
annual report is consistent with the financial statements.
The firm of Arthur Andersen LLP, independent public accountants, was
engaged to render a professional opinion on Walgreen Co.'s consolidated
financial statements. Their report contains an opinion based on their audit,
which was made in accordance with generally accepted auditing standards and
procedures, which they believed were sufficient to provide reasonable assurance
that the consolidated financial statements, considered in their entirety, are
not misleading and do not contain material errors.
Three outside members of the Board of Directors comprise the company's
Audit Committee, which meets at least quarterly and is responsible for reviewing
and monitoring the company's financial and accounting practices. In order to
insure and maintain complete independence, Arthur Andersen LLP and the company's
General Auditor have access to meet alone with the Audit Committee, which also
meets with the company's management to discuss financial matters, auditing and
internal accounting controls.
The company's systems are designed to provide an effective system of
internal accounting controls to obtain reasonable assurance at reasonable cost
that assets are safeguarded from material loss or unauthorized use and
transactions are executed in accordance with management's authorization and
properly recorded. To this end, management maintains an internal control
environment which is shaped by established operating policies and procedures, an
appropriate division of responsibility at all organizational levels, and a
corporate ethics policy which is monitored annually. The company also has an
Internal Control Evaluation Committee, comprised primarily of senior management
from the Accounting and Auditing Departments, which oversees the evaluation of
internal controls on a company-wide basis. Management believes it has
appropriately responded to the internal auditors' and independent public
accountants' recommendations concerning the company's internal control system.
C. R. Walgreen III__________________ ___R. H. Clausen__________________
C. R. Walgreen III R. H. Clausen
Chairman of the Board Controller
and Chief Executive Officer and Chief Accounting Officer
C. D. Hunter________________________
C. D. Hunter
Vice Chairman
and Chief Financial Officer
THE WALGREEN YEAR...A REVIEW BY QUARTERS (Unaudited)
Summary of Quarterly Results, Fiscal 1994 and 1993
(Dollars in Thousands, except per share data)
Quarter Ended___________________
Fiscal
November February May August Year
________________________________________________________________________________
Fiscal 1994
Net sales $2,117,954 $2,498,537 $2,335,961 $2,282,526 $9,234,978
Gross profit 589,802 712,958 656,037 661,736 2,620,533
Net earnings 44,213 97,615 71,018 69,083 281,929
================================================================================
Net earnings per
common share $ .36 $ .79 $ .57 $ .56 $ 2.28
================================================================================
Fiscal 1993
Net sales $1,914,630 $2,257,921 $2,085,255 $2,037,034 $8,294,840
Gross profit 527,454 638,186 581,760 588,438 2,335,838
Earnings before
cumulative effect
of accounting
changes 39,628 83,583 63,765 58,313 245,289
Cumulative effect
of accounting
changes (23,623) - - - (23,623)
Net earnings $ 16,005 $ 83,583 $ 63,765 $ 58,313 $ 221,666
================================================================================
Per common share:
Earnings before
cumulative effect
of accounting
changes $ .32 $ .67 $ .52 $ .47 $ 1.98
Cumulative effect
of accounting
changes (.19) - - - (.19)
Net earnings $ .13 $ .67 $ .52 $ .47 $ 1.79
================================================================================
________________________________________________________________________________
COMMENTS ON QUARTERLY RESULTS
In further explanation of and supplemental to the quarterly results, the 1994
fourth quarter LIFO adjustment was a credit of $14,335,000 compared to a 1993
credit of $2,396,000. If the 1994 interim results were adjusted to reflect the
actual inventory inflation rates and inventory levels at August 31, 1994,
earnings per share would have been higher in the first two quarters by $.04 and
$.05, respectively, and lower in the third and fourth quarters by $.01 and $.08,
respectively. Similar adjustments in 1993 would have increased earnings per
share in the first three quarters by $.02, $.02 and $.01, respectively, and
decreased the fourth quarter by $.05.
The cumulative effect of accounting changes reflect the adoption of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 109, "Accounting for Income Taxes."
The February 1993 quarter included costs of $6,821,000 ($.03 per share) for
the early redemption of the company's $100 million 9 1/2% sinking fund
debentures which were due in 2016.
EXHIBIT 21
Subsidiaries of the Registrant
There are no parents of the Registrant, Walgreen Co. (an Illinois corporation).
The following subsidiaries are wholly owned by the Registrant, 15 of which are
engaged in the operation of retail drug stores and one, Walgreens Healthcare
Plus, Inc., in mail order drug operations.
STATE, COMMONWEALTH OR
NAME COUNTRY OF INCORPORATION
Walgreen Arizona Drug Co. Arizona
Bond Drug Company of Clinton Delaware
Bond Drug Company of Illinois Illinois
Walgreens Healthcare Plus, Inc. Illinois
Walgreen Southgate Corp. Indiana
Walgreen Woodmar, Inc. Indiana
Walgreen Louisiana Co., Inc. Louisiana
Walgreen Columbus Co. Nebraska
Walgreen Fremont Co. Nebraska
Walgreen Hastings Co. Nebraska
Walgreen Kearney Co. Nebraska
Walgreen Lincoln Co. Nebraska
Walgreen Eastern Co., Inc. New York
Walgreen New Berlin, Inc. Wisconsin
Walgreen of Puerto Rico, Inc. Puerto Rico
Walgreen of San Patricio, Inc. Puerto Rico
In addition to the above named subsidiaries, the Registrant wholly owns 7
subsidiaries engaged in service or real estate operations, and 16
inactive subsidiaries. These 23 subsidiaries, considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary.
All wholly owned subsidiaries are included in the consolidated financial
statements.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated October 20, 1994 included
or incorporated by reference in this Form 10-K, into the company's
previously filed Registration Statements File No. 2-79977, File No.
2-79978 and File No. 33-49676.
Arthur Andersen LLP
Chicago, Illinois,
November 21, 1994
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ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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