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-Q
(Mark One)
____X____ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED MAY 31, 1994.
or
__________ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ______________ to _____________
Commission file number 1-604.
WALGREEN CO.____________________________________
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1924025_____________
(State of incorporation) (I.R.S. Employer Identification No.)
200 WILMOT ROAD, DEERFIELD, ILLINOIS 60015___
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 940-2500___
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (applicable only to
corporate issuers).
COMMON STOCK, $.625 PAR VALUE; ISSUED AND OUTSTANDING 123,070,536 AT
JUNE 30, 1994.
Page 1 of 11
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have
been prepared by the company pursuant to the rules and regulations of the
Securities and Exchange Commission. The Consolidated Condensed Balance
Sheet as of May 31, 1994 and the Consolidated Condensed Statements of
Earnings for the three and nine months ended May 31, 1994 and 1993, and the
Consolidated Condensed Statements of Cash Flows for the nine months ended
May 31, 1994 and 1993 have been prepared without audit. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial statements
and the notes thereto included in the company's latest annual report on Form
10-K.
In the opinion of the company the condensed statements for the
unaudited interim periods presented include all adjustments, consisting
only of normal recurring adjustments, necessary to present a fair statement
of the results for such interim periods. Because of the influence of
certain holidays, seasonal and other factors on the company's operations,
net earnings for any interim period may not be comparable to the same
interim period in previous years, nor necessarily indicative of earnings for
the full year.
2
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
May 31, August 31,
1994 1993___
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 179,860 $ 91,597
Marketable securities, at cost which
approximates market 31,825 29,695
Accounts receivable, net of allowances
for doubtful accounts of $25,837,000 at
May 31, and $23,050,000 at August 31 177,732 139,313
Inventories 1,122,219 1,094,035
Other current assets 91,327 108,493
Total Current Assets 1,602,963 1,463,133
Property and Equipment, at cost, less
accumulated depreciation and amortization
of $526,971,000 at May 31, and
$453,155,000 at August 31 1,042,420 927,333
Other Non-Current Assets 142,946 144,725
TOTAL ASSETS $2,788,329 $2,535,191
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 442,923 $ 427,185
Other current liabilities 520,779 456,322
Total Current Liabilities 963,702 883,507
Non-Current Liabilities:
Deferred income taxes 186,663 173,343
Other non-current liabilities 111,225 99,590
Total Non-Current Liabilities 297,888 272,933
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 at May 31, and August 31 76,919 76,919
Retained earnings 1,449,820 1,301,832
1,526,739 1,378,751
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $2,788,329 $2,535,191
========== ==========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these Statements.
3
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
May 31, May 31,
1994 1993 1994 1993___
(Dollars in Thousands Except Per Share Data)
Net Sales $2,335,961 $2,085,255 $6,952,452 $6,257,806_
Costs and Deductions:
Cost of sales 1,679,924 1,503,495 4,993,655 4,510,406
Selling, occupancy and
administration 541,941 480,054 1,615,701 1,439,794_
2,221,865 1,983,549 6,609,356 5,950,200_
Other Income (Expense):
Interest income (1,456) (1,488) (3,585) (4,981)
Interest expense 543 769 1,991 5,427
Debt redemption costs - - - 6,821_
(913) (719) (1,594) 7,267_
Earnings before income tax
provision and cumulative
effect of accounting
changes 115,009 102,425 344,690 300,339
Income tax provision 43,991 38,660 131,844 113,363_
Earnings before cumulative
effect of accounting
changes 71,018 63,765 212,846 186,976
Cumulative effect of
accounting changes - - - (23,623)
Net Earnings $ 71,018 $ 63,765 $ 212,846 $ 163,353
=========== =========== =========== ===========
Per Share:
Earnings before cumulative
effect of accounting
changes $ .57 $ .52 $ 1.72 $ 1.51
Cumulative effect
of accounting
changes - - - (.19)
Net Earnings $ .57 $ .52 $ 1.72 $ 1.32
=========== =========== =========== ===========
Dividends Declared $ .17 $ .15 $ .51 $ .45
=========== =========== =========== ===========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these Statements.
4
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
May 31,
1994 1993 _
(In Thousands)
Net cash provided by operating activities $ 350,255 $ 297,786_
Cash (Used for) Provided by Investing Activities:
Additions to property and equipment (211,139) (127,877)
Net (purchases) sales of marketable securities (2,130) 61,101
Investment in corporate-owned life insurance (25,531) (25,539)
Proceeds from borrowing against corporate-
owned life insurance 29,526 -
Proceeds from disposition of property and
equipment 9,874 6,280
Other 434 (1,078)_
Net cash used for investing activities (198,966) (87,113)_
Cash (Used for) Provided by Financing Activities:
Cash dividends paid (60,309) (52,920)
Payments of long-term obligations (5,421) (106,667)
Proceeds from (purchases for) employee
stock plans 4,799 (14,078)
Cost of employee stock purchase and
option plans (2,095) (1,992)
Net cash used for financing activities (63,026) (175,657)
Changes in Cash and Cash Equivalents:
Net increase in cash and cash equivalents 88,263 35,016
Cash and cash equivalents at beginning
of year 91,597 144,540_
Cash and Cash Equivalents at end of period $ 179,860 $ 179,556
========== ==========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these Statements.
5
WALGREEN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Fiscal 1993 results have been restated to reflect the early adoption of
two Financial Accounting Standards Board pronouncements in the fourth quarter of
fiscal 1993. In the first quarter of fiscal 1993, the adoption of SFAS NO. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
resulted in a cumulative pretax charge of $59,138,000 ($36,813,000 after tax;
$.30 per share), and the adoption of SFAS No. 109, "Accounting for Income
Taxes," increased net earnings $13,190,000 ($.11 per share). In addition,
accounting for postretirement benefits other than pensions on an accrual basis
resulted in $1,020,000 and $3,060,000 charges against pretax earnings for the
three and nine months ended May 31, 1993, respectively. The effective date of
adoption of both standards was September 1, 1992.
(2) Inventories are valued on a lower of last-in, first-out (LIFO) cost or
market basis. At May 31, 1994 and August 31, 1993, inventories would have been
greater by $407,903,000 and $388,464,000 respectively, if they had been valued
on a lower of first-in, first-out (FIFO) basis. LIFO inventory costs can only
be determined at the end of each fiscal year when inflation rates and inventory
levels are finalized; therefore, LIFO inventory costs for interim financial
statements are estimated. Cost of sales is primarily computed on an estimated
basis and adjusted based on periodic inventories.
(3) On December 15, 1992, the company redeemed the $100 million 9 1/2%
sinking fund debentures, due 2016, at a cost of $6,821,000 ($.03 per share).
The costs to retire the debt were not reflected as an extraordinary item because
they were not material.
(4) The weighted average number of common shares and equivalents used for
calculating primary net earnings per share was 123,683,000 and 123,741,000 for
the nine months ended May 31, 1994 and 1993, respectively. Fully diluted net
earnings per share are the same as primary net earnings per share.
(5) The company is involved in various legal proceedings incidental to the
normal course of business. These include one group of product liability claims
filed against the company seeking damages for alleged personal injuries
resulting from the ingestion of an over-the-counter product alleged to contain a
contaminated bulk material. The company has secured an indemnification from the
American subsidiary of a foreign manufacturer, under which over 70% of the cases
have been settled or dismissed without the company being required to make any
payments. The company also has product liability insurance which it believes
provides coverage against these claims. While it is not feasible to predict the
outcome of the remaining product liability claims and other legal proceedings
and claims with certainty, management is of the opinion, with which its General
Counsel concurs, that their ultimate disposition will not have a material
adverse effect on the company's consolidated financial position or results of
operations.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net earnings for the third quarter, ended May 31, 1994, were $71,018,000 or $.57
per share. This was a 9.6% increase over last year. Net earnings for the nine
months, before the cumulative effect of accounting changes for postretirement
benefits and income taxes, which involved restatement of fiscal 1993 earnings,
were up 13.8% to $212,846,000 or $1.72 per share. Net earnings for the nine
months ended May 31, 1994 were up 30.3% from last year.
Net earnings for the nine months benefited by comparison to last year, which was
negatively impacted by 3 cents per share due to redemption of all $100 million
of the company's 9 1/2 percent sinking fund debentures, due in 2016.
Sales increased by 12.0% in the third quarter, to $2,335,961,000, and rose by
11.1% to $6,952,452,000 for the first nine months. Drug store sales increases
resulted from sales gains in existing stores, added sales from new stores, and
an indeterminate amount of market driven price changes. Comparable drug store
sales gains were 5.8% for the quarter and 5.2% for the first nine months. New
stores accounted for 8.1% and 7.3% of the quarterly and nine-month sales
increases. The company operated 1,922 drug stores as of May 31, 1994, compared
to 1,789 a year earlier.
Prescriptions continued to be the strongest sales category, increasing 18.2% for
the third quarter and 18.7% for the first nine months. Prescription business
has been increasing at a rate of 1.3 million scripts a month for more than a
year. Prescription sales accounted for 42.2% of the third quarter sales and
40.3% of the sales for the nine-month period. This compared to 40.0% and 37.7%
for the quarter and nine-month periods last year. Prescription sales in
comparable stores (those open at least one year) were up 11.8% for the
nine-month period.
Favorable prescription sales trends should continue. The aging population
accounts for a third of the annual healthcare bill in the U.S. today and could
be 50% by the year 2000. The development of new drugs is expected to continue,
with special emphasis on drug therapy for diseases that affect the elderly.
Proposed healthcare reform is another factor that could result in additional
prescription use. Universal pharmaceutical coverage, for example, would extend
prescription benefits to as many as 70 million people who don't have them today.
Besides these external factors, the company is expanding in new and existing
markets. Future growth is also expected in both Healthcare Plus (the company
mail service subsidiary) and RxPress (pharmacy-only stores).
Gross margins as a percentage of sales increased in the third quarter to
28.1% from 27.9% last year, and to 28.2% from 27.9% for the nine-month period.
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. 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.
7
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 profit are more representative of real volume
growth. For LIFO calculation purposes, the estimated annual inflation rates
were reduced to 1.75% for fiscal 1994 and 3.00% for 1993 from 2.75% and 3.25%
estimated at February 28, 1994 and 1993 respectively, which resulted in a credit
to cost of sales of $.8 million and a charge of $19.4 million for the quarter
and nine-month periods ended May 31, 1994 versus charges of $8.5 million and
$30.5 million for the same periods a year ago. The decline in the rates
principally resulted from lower inflation estimates for prescription
inventories.
Selling, occupancy and administration expenses increased to 23.2% from 23.0% of
sales for both the quarter and nine months. As a percent to sales, improved bad
debt experience was more than offset by higher store salaries and costs
associated with closing 50 retail locations. The 55 additional new stores,
which temporarily experience higher salary expense ratios, and the 45 additional
stores open 24 hours were the principal reasons for the salary increases as a
percent to sales.
Interest expense for the nine months decreased due to the December 1992 early
redemption of the company's $100 million 9 1/2% sinking fund debentures which
cost the company $6,821,000 ($.03 per share) in the second quarter last year.
This reduced annual interest expense $9.5 million. The decrease in interest
income for the nine months resulted from lower investment rates and levels.
Average net investment levels were approximately $92 million for the nine months
compared to $135 million for the same period a year ago. Interest income for
the quarter was comparable to last year because higher interest rates offset
lower investment levels.
The 1994 effective tax rate increased to 38.25% from 37.75% primarily due to the
changes in the federal income tax law enacted in August 1993.
Financial Condition
Cash and cash equivalents and marketable securities were $212 million at May 31,
1994, compared to $199 million at May 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 $52 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 $199 million for the first nine
months versus $87 million last year. During fiscal 1994 the company borrowed
$30 million against corporate-owned life insurance which was used to finance
working capital requirements. Additions to property and equipment were $211
million compared to $128 million last year. One hundred thirty five stores
opened and one was acquired in the first nine months of fiscal 1994 -- the
largest nine-month non-acquisition growth ever. This compares to 89 stores
opened in the same period last year. Planned capital expenditures for fiscal
1994 are $300 million. Approximately 60 drugstores
8
are expected to open in the fourth quarter, which will bring the new store
openings for the full fiscal year close to the 200 level. RxPress
(pharmacy-only) units are being introduced into the greater Los Angeles market
this summer, with one already open in Anaheim, California. In addition to
entering the Cleveland and Buffalo markets in the fall of 1994, the company
announced a planned entry into the Philadelphia market in the fall of 1995. The
company intends to open more than a dozen stores in this market the first year
and could eventually operate more than 100 drugstores in Philadelphia. The
company expects to open 200 or more new stores annually for the next five years.
The company's goal is to operate 3,000 stores by the year 2000. In October the
company plans to open a new mail service facility in Tempe, Arizona. 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.
Net cash used for financing activities was $63 million for the first nine months
of fiscal 1994 compared to $176 million in fiscal 1993, which included the
redemption of $100 million in debentures. At May 31, 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 $96 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.
9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report:
(10)(a) Walgreen Management Incentive Plan, as amended.
(b) Walgreen Executive Deferred Profit-Sharing Plan, as
restated effective April 13, 1994.
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter which
ended May 31, 1994.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALGREEN CO._________
(Registrant)
Date July 14, 1994 C. D. Hunter_________
Vice Chairman
(Chief Financial Officer)
Date July 14, 1994 R. H. Clausen________
Controller
(Chief Accounting Officer)
11
Walgreen Management Incentive Plan
1. Purpose: The purpose of the Walgreen Management Incentive Plan
(the "Plan") is to provide special incentive and motivation to those
Walgreen employees who make substantial contributions to the success of
Walgreen Co. by their exceptional service.
2. Definitions: For the purpose of the Plan, unless the context
provides otherwise:
a. The term "Company" shall mean and include Walgreen Co. and all
of its wholly-owned subsidiaries.
b. The term "Employees" shall mean any employee of the Company,
including, but not limited to, the officers of Walgreen Co.
c. The term "Committee" shall mean the compensation committee
appointed by the Board of Directors of Walgreen Co. from among
its own members.
d. The term "Plan Participant" shall mean any Employee who
participates in and is eligible to receive incentive
compensation under the terms of the Plan.
e. The term "Bonus Base Earnings" shall mean the consolidated net
earnings of the Company for the fiscal year, before deducting
the LIFO inventory valuation provision and the provision for
taxes based upon income, less the interest income earned on
Average Short-Term Investments in excess of Average Short-Term
Borrowings which is deducted in the determination of Average
Invested Capital under the provisions of paragraph 2h of the
Plan, less the effect of the capitalized lease obligations
upon income, plus the Stock Award Plan provision and after
adjusting to eliminate the effect of acquisitions and
divestitures upon earnings, net of their related effect on the
profit sharing provision, all computed in accordance with
generally accepted accounting principles and as reported to
the shareowners in the Annual Report of the Company, but
subject to any adjustment as may be made under the provisions
of paragraph 3g of the Plan.
f. The term "Average Short-Term Borrowings" shall mean the daily
average short-term borrowings of the Company during the fiscal
quarter.
g. The term "Average Short-Term Investments" shall mean the daily
average short-term investments of the Company during the
fiscal quarter.
h. The term "Invested Capital" shall mean the consolidated
shareowners' equity, plus long-term obligations (including the
current portion of long term debt and capital base
obligations) plus deferred income taxes, plus the reserve for
LIFO inventory valuation net of its income tax effect, all
computed in accordance with generally accepted accounting
principles, plus the Average Short-Term Borrowings and less
the Average Short-Term Investments (allowing a net investment
position to reduce the Invested Capital in a quarter) for the
fiscal quarter, all as they may be classified as such under
generally accepted accounting principles, except that any
capitalized lease obligations shall be excluded, and the
liability relating to the current year's Stock Award Plan
provision, net of profit sharing and income taxes shall be
included, but all subject to any adjustment as may be made
under the provisions of paragraph 3g of the Plan.
i. The term "Average Invested Capital" shall mean the total of
the Invested Capital at the beginning of each fiscal quarter
of such fiscal year divided by the number of fiscal quarters
included therein.
j. The term "Return on Invested Capital" shall mean the Bonus
Base Earnings for the fiscal year divided by the Average
Invested Capital for the fiscal year.
k. The term "Salary Grade" shall mean the salary grades to which
job positions are assigned under the Walgreen Co. Salary
Administration Program.
l. The term "Base Salary" shall mean the base salary earned
during the fiscal year, including salary earned but deferred
or reduced pursuant to Section 401(k) or Section 125 of the
Internal Revenue Code, under the terms of a Company benefit
plan. The term "Base Salary" does not include any incentive
or performance bonuses, Christmas bonus, stock purchase
discounts, or other fringe benefits, tips, suggestions system
awards, or other supplementary remuneration.
m. The term "Prorated Bonus Base Salary" shall mean the first
$25,000 of the Base Salary, or portion thereof, based on the
percent of the year during which the participant was
bonusable.
n. The term "Swing Bonus Base Salary" shall mean that portion of
the Base Salary earned while bonusable which is in excess of
prorated bonus base salary.
o. The term "Bonus Pool" shall mean the aggregate amount of bonus
dollars earned collectively by all the Plan Participants.
p. The term "Bonus Percent" shall mean the percentage determined
under the provision of paragraph 3b of the Plan.
q. The term "Individual Penalty" shall mean the amount of any
reduction in the bonus share that would otherwise be allocated
to a Plan Participant by reason of unsatisfactory performance
as determined by the Vice President in charge of the
respective division, and concurred in by either the President
or the Chairman of the Board, or both.
3. The Plan:
a. Any Employee (1) whose job position is in Salary Grade 12 or
above and is not covered by another management incentive plan;
or (2) who, in the opinion of management, is in a position to
make a substantial contribution to the success of Walgreen Co.
by exceptional service in a supervisory or staff position, may
be recommended by management, and if approved by the
Committee, will become a Plan Participant the bonus.
b. Prior to the beginning of each fiscal year, or as early in the
fiscal year as is practical considering the circumstances,
management will recommend to the Board of Directors the Return
On Invested Capital which will result in Bonus Percents of 0%,
40%, 50%, 60%, 70%, 80%, 90% and 100% which will apply to the
Bonus Pool. When approved by the Board of Directors, those
rates of Return On Invested Capital will become the standards
of performance for incentive bonus purposes for the fiscal
year, provided that:
(1) No bonus will be paid unless the Bonus Percent earned is
at least 5%.
(2) The maximum allowable Bonus Percent will be 100%.
(3) Bonus Percent between 0% and 40%, 40% and 50%, 50% and
60%, 60% and 70%, 70% and 80%, 80% and 90%, 90% and 100%
will be interpolated on a straight line basis.
c. For fiscal 1989, the amount to be paid into the bonus pool
will be the sum of the following:
(1) 5% of the Prorated Bonus Base Salary of all the Plan
Participants.
(2) The product of multiplying the Swing Bonus Base Salary of
all the Plan Participants in Salary Grade 14 and above
and in Salary Grades 12 and 13 with more than one year of
participation in the Plan by the Bonus Percent.
(3) The product of multiplying the Swing Bonus Base Salary of
Grades 12 or 13 in the initial year of participation by
33% of the bonus percent.
d. For fiscal 1989, the bonus will be allocated to the Individual
Plan Participants in Salary Grades 12 and above in the
following manner:
(1) For all Salary Grades 14 and above and Salary Grade 12
and 13 with more than one year of participation in the
Plan the participants will be entitled to:
(a) 5% of Prorated Base Salary.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by the Bonus Percent.
(c) Minus any Individual Penalty.
(2) Participants in Salary Grade 12 or 13 in the initial year
of Plan participation will be entitled to:
(a) 5% of Prorated Bonus Base Salary.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by 33% of the Bonus Percent.
(c) Minus any Individual Penalty.
e. For years after fiscal 1989, the amount to be paid into the
bonus pool will be the sum of the following:
(1) 5% of the Prorated Bonus Base Salary of all the Plan
Participants.
(2) The product of multiplying the Swing Bonus Base Salary of
Grades 12 or 13 in the initial year of participation by
33% of the bonus percent.
(3) The product of multiplying the Swing Bonus Base Salary of
Grades 12 or 13 in the second year of participation by
66% of the bonus percent.
(4) The product of multiplying the Swing Bonus Base Salary of
all the Plan Participants in Salary Grade 14 and above
and in Salary Grades 12 and 13 with more than two years
of participation in the Plan by the Bonus Percent.
(f) For years after fiscal 1989, the bonus will be allocated to
the Individual Plan Participants in Salary Grades 12 and above
in the following manner:
(1) For all Salary Grades 14 and above and Salary Grade 12
and 13 with more than two years of participation in the
Plan the participants will be entitled to:
(a) 5% of Prorated Bonus Base Salary.
(b) Plus the products of multiplying the Prorated Swing
Bonus Base Salary by the Bonus Percent.
(c) Minus Individual Penalty.
(2) Participants in Salary Grade 12 and 13 in the second year
of Plan participation will be entitled to:
(a) 5% of Prorated Bonus Base Salary.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by 66% of the Bonus Percent.
(c) Minus any Individual Penalty.
(3) Participants in Salary Grade 12 and 13 in the initial
year of Plan participation will be entitled to:
(a) 5% of Prorated Bonus Base Salary.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by 33% of the Bonus Percent.
(c) Minus any Individual Penalty.
g. After the end of each fiscal year when the computations and
accounting determinations required by paragraphs 3b, 3c and
3d, or 3b, 3e and 3f have been completed, the Chief Accounting
Officer of the Company will report to the Committee that in
his opinion those computations, and accounting determinations
were made in reasonable accordance with the terms of the Plan,
and generally accepted accounting principles, subject to any
adjustments provided for under the terms of paragraph 3i of
the Plan and the certifications provided for under the terms
of paragraph 3h of the Plan.
h. At the end of each fiscal quarter, the Treasurer of the
Company will certify in writing to the Chief Accounting
Officer of the Company the Average Short-Term Borrowings and
the Average Short-Term Investments for the fiscal quarter just
ended.
i. In the event that the Company experiences any extraordinary
items of profit or loss, the Finance Committee of the Board of
Directors will recommend to the full Board of Directors
whether such extraordinary items will be included in or
excluded from the bonus calculation, and in such situations
the Chairman of the Finance Committee will report the Board of
Directors' decision in writing to the Chief Accounting Officer
of the Company.
j. The bonus earned by the Plan Participants under the terms of
the Plan will be paid to the Plan Participants after the first
meeting of the Board of Director which follows the end of the
applicable fiscal year, but in no event later than the date by
which such bonus must be paid in order to be allowed as a
Federal income tax deduction for that fiscal year.
k. Any Plan Participant who leaves the employ of the Company for
reasons other than retirement or disability during the fiscal
year shall not be eligible to participate in the bonus pool
provided by this Plan. It is not intended that this paragraph
of the Plan shall prohibit Management from recommending to the
Board of Directors for its approval a discretionary bonus if
in the sole judgment of Management such a discretionary bonus
is warranted.
4. Amendment of the Plan: The Plan may be amended from time to time
or terminated at any time by the Board of Directors.
Walgreen Management Incentive Plan
Amendment No. 1
I
Paragraph 2i of the Plan shall be amended to read as follows, effective
September 1, 1989:
i. The term "Average Invested Capital" shall mean the total of
the Invested Capital at the beginning of the fiscal year plus
at the end of each fiscal quarter of such fiscal year divided
by five.
II
In all respects, except as otherwise set forth, the Plan shall remain in
force and effect.
Walgreen Management Incentive Plan
Amendment No. 2
I
A new Paragraph 3f(4) of the Plan shall be added to read as follows:
(4) Notwithstanding Paragraphs (2) and (3) above, the bonus
amount payable to a participant hired within the fiscal year,
or who received payment under another company incentive plan
during the prior year, shall be determined by that
participants Corporate Vice President and the Vice President
of Human Resources.
II
In all repects, except as otherwise set forth, the Plan shall remain in
force and effect.
Walgreen Management Incentive Plan
Amendment No. 3
I
Paragraph 3 of the Plan shall be amended to read as follows:
c. For fiscal 1989, the amount to be paid into the bonus pool
will be the sum of the following:
(1) 5% of the Prorated Bonus Base Salary of all the Plan
Participants in Salary Grade 14 and above, and in Salary
Grades 12 and 13 with more than one year of participation
in the Plan.
(2) The product of multiplying 5% of the Prorated Bonus Base
Salary of all the Plan participants in Salary Grades 12
or 13 in the initial year of participation by 33%.
(3) The product of multiplying the Swing Bonus Base Salary of
all the Plan Participants in Salary Grade 14 and above,
and in Salary Grades 12 and 13 with more than one year of
participation in the Plan by the Bonus Percent.
(4) The product of multiplying the Swing Bonus Base Salary of
Grades 12 or 13 in the initial year of participation by
33% of the bonus percent.
d. For fiscal 1989, the bonus will be allocated to the Individual
Plan Participants in Salary Grades 12 and above in the
following manner:
(1) For all Salary Grades 14 and above, and Salary Grades 12
and 13 with more than one year of participation in the
Plan the participants will be entitled to:
(a) 5% of Prorated Bonus Base Salary.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by the Bonus Percent.
(d) Minus any Individual Penalty.
(2) Participants in Salary Grades 12 or 13 in the initial
year of Plan participation will be entitled to:
(a) 5% of Prorated Bonus Base Salary multiplied by 33%.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by 33% of the Bonus Percent.
(c) Minus any Individual Penalty.
e. For years after fiscal 1989, the amount to be paid into the
bonus pool will be the sum of the following.
(1) 5% of the Prorated Bonus Base Salary of all the Plan
Participants in Salary Grade 14 and above, and in Salary
Grades 12 and 13 with more than two years of
participation in the plan.
(2) The product of multiplying 5% of the Prorated Bonus Base
Salary of all the Plan Participants in Salary Grades 12
or 13 in the initial year of participation by 33%.
(3) The product of multiplying 5% of the Prorated Bonus Base
Salary amount of all the Plan Participants in the second
year of participating by 66%.
(4) The product of multiplying the Swing Bonus Base Salary of
Grades 12 or 13 in the initial year of participation by
33% of the Bonus Percent.
(5) The product of multiplying the Swing Bonus Base Salary of
Grades 12 or 13 in the second year of participation by
66% of the Bonus Percent.
(6) The product of multiplying the Swing Bonus Base Salary of
all the Plan Participants in Salary Grade 14 and above,
and in Salary Grades 12 and 13 with more than two years
of participation in the Plan by the Bonus Percent.
f. For years after fiscal 1989, the bonus will be allocated to
the Individual Plan Participants in Salary Grade 12 and above
in the following manner:
(1) For all Salary Grades 14 and above, and Salary Grades 12
and 13 with more than two years of participation in the
Plan, the participants will be entitled to:
(a) 5% of Prorated Bonus Base Salary.
(b) Plus the products of multiplying the Prorated Swing
Bonus Base Salary by the Bonus Percent.
(c) Minus Individual Penalty.
(2) Participants in Salary Grades 12 and 13 in the second
year of Plan participation will be entitled to:
(a) 5% of Prorated Bonus Base Salary multiplied by 66%.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by 66% of the Bonus Percent.
(c) Minus any Individual Penalty.
(3) Participants in Salary Grades 12 and 13 in the initial
year of Plan participation will be entitled to:
(a) 5% of Prorated Bonus Base Salary multiplied by 33%.
(b) Plus the products of multiplying the Swing Bonus Base
Salary by 33% of the Bonus Percent.
(c) Minus any Individual Penalty.
II
In all respects, except as otherwise set forth, the Plan shall remain in
full force and effect.
Walgreen Management Incentive Plan
Amendment No. 4
I
A new paragraph 2r shall be added to the Plan as follows:
2r. The term "Extraordinary Items" shall mean significant
transactions that are different from the typical or customary
business transactions and are not expected to occur frequently
as determined by the informed professional judgment of the
chief financial officer of the Company after taking into
consideration all the facts involved in a particular situation
and the objectives of the Plan.
II
Current paragraphs 3(c) and (d) shall be deleted and subsequent
paragraphs renumbered accordingly.
III
In all respects, except as otherwise set forth, the Plan shall remain in
force and effect.
WALGREEN CO. EXECUTIVE
DEFERRED PROFIT SHARING PLAN
Walgreen Co. (the "Company") maintains a non-qualified unfunded deferred
compensation and profit-sharing program for certain of its employees as
described herein, which program was originally effective as of January 1, 1990.
The following shall constitute the terms and conditions of the Walgreen Co.
Executive Deferred Profit-Sharing Plan ("this Plan"), as restated effective
April 13, 1994.
1. Administration. This Plan shall be administered by the Board of Directors of
the Company and the Trustees of the Walgreen Profit-Sharing Retirement Plan
("the Profit-Sharing Plan"), who will have, to the extent appropriate, the same
powers, rights, duties and obligations with respect to this Plan as they do
with respect to the Profit-Sharing Plan.
2. Eligibility. Only those employees who are restricted from making full
regular contributions to the Profit-Sharing Plan by operation of the percentage
or dollar amount limitations of Sections 3.7 or 4.1(b) of the Profit-Sharing
Plan, and who execute an irrevocable election under this Plan, shall be
eligible to participate in this Plan. This Plan is intended to cover a select
group of highly compensated employees: to the extent that the Trustees
determine, based upon Department of Labor regulations or rulings, that certain
participants are not select group employees, then the Trustees shall commence
payment of the benefits under this Plan to those participants over a period of
up to five years as selected by the Company, and such employees shall cease to
be participants.
3. Participant Deferred Profit-Sharing Contribution. Each participant shall
make an irrevocable election in writing to defer under this Plan any amount he
or she is unable to contribute to the Profit-Sharing Plan by operation of its
Sections 3.7 and 4.1(b).
4. Deferred Profit-Sharing Account. The Company shall establish and maintain a
bookkeeping account in the name of each participant, which shall be known as
his or her "Deferred Profit-Sharing Account" and which shall be credited with
the amount of compensation deferred under this Plan. A participant's
bookkeeping account hereunder shall at all times be reflected on the Company's
books as a general unsecured and unfunded obligation of the Company, and this
Plan shall not give any person any right or security interest in any asset of
the Company nor shall it imply any trust or segregation of assets by the
Company.
5. Credits to the Deferred Profit-Sharing Account.
(a) Deferral Amounts. Each participant's Deferred Profit-Sharing Account shall
be credited by an amount equal to the amount which is unable to be allocated to
his or her account under the Profit-Sharing Plan by operation of Sections 3.7
and 4.1(b) of that Plan.
(b) Profit Sharing Allocation Amounts. Each participant's Deferred
Profit-Sharing Account shall be credited by an amount equal to the amount
allocated to his or her account under the Company profit-sharing allocation
formula without regard to the limitations of Sections 4.1(b)(i)(B) and (ii) or
3.7, provided that amounts otherwise credited under this provision shall not be
so credited if they are in excess of an amount equivalent to the limitation
imposed by Section 415 of the Code.
6. Adjustments to the Deferred Profit-Sharing Account.
(a) General. The amounts credited to a participant's deferred Profit-Sharing
Account shall be adjusted to reflect the earnings, gains, forfeitures, losses
and expenses that would have been debited or credited to the Account if such
amount had been allocated to the participant's account under the Profit-Sharing
Plan and invested in the same manner as such account would be invested
thereunder. Such adjustment shall be determined by the Trustees of the
Profit-Sharing Plan and their determination shall be final and conclusive.
(b) Timing of Adjustments and Credits. All credits and adjustments to a
participant's Deferred Profit-Sharing Account shall be made as of the date such
credit or adjustment would have been made under the Profit-Sharing Plan.
7. Payment of Account Balances. A participant who terminates employment by
reason of retirement on or after attaining age 62, death, disability, or
otherwise after becoming 100 percent vested in his or her accounts under the
Profit-Sharing Plan shall be entitled to payment of the amounts credited to his
or her Accounts under Paragraphs 5 and 6 at the time and in the manner provided
in Paragraph 8 below. If a participant terminates employment prior to becoming
100 percent vested under the Profit-Sharing Plan, such participant shall be
entitled to payment of the portion of the amounts credited under Paragraphs 5
and 6(a) of this Plan which is "vested" when measured with reference to the
vesting schedule under the Profit-Sharing Plan, and the remainder shall be
forfeited.
8. Time and Manner of Payment of Account Balances. The Trustees shall, in their
sole discretion, select the manner in which participants' account balances
shall be distributed, which may include the methods permitted under the
Profit-Sharing Plan.
9. Effect on Other Benefit Plans. Amounts credited or paid under this Plan, and
the amount of any pay reduced pursuant to Paragraph 3, shall not be considered
to be compensation for the purposes of any qualified plan maintained by the
Company. The treatment of such amounts under other employee benefit plans or
programs shall be determined pursuant to the provisions of such plans or
programs.
10. Facility of Payment. If the participant or his or her beneficiary is
entitled to payments under this Plan and in the opinion of the Trustees of the
Profit-Sharing Plan such person becomes in any way incapacitated so as to be
unable to manage his or her financial affairs, the Company may make payments to
the participant's or beneficiary's legal representative, or to a relative or
friend of the participant or beneficiary for such person's benefit, or the
Trustees of the Profit-Sharing Plan may make payments for the benefit of the
participant or beneficiary in any manner that it considers advisable. Any
payments made in accordance with the preceding sentence shall be a full and
complete discharge of any liability for such payment hereunder.
11. Non-Alienation. All rights and benefits under this Plan are personal to the
participant and neither this Plan nor any right or interest of a participant or
any person arising under this Plan is subject to voluntary or involuntary
alienation, sale, transfer, or assignment without the Company's consent.
12. Withholding for Taxes. The Company may withhold from any payment made by it
under this Plan such amount or amounts as may be required for purposes of
complying with the tax withholding or other provisions of the Internal Revenue
Code or the Social Security Act or any state's income tax act or for purposes
of paying any estate, inheritance or other tax attributable to any amounts
payable hereunder.
13. Employment Rights. This Plan is not a contract of employment, and
participation in this Plan will not give any participant the right to be
retained in the employ of the Company, nor any right or claim to any benefit
under this Plan, unless the right or claim has specifically accrued under this
Plan.
14. Trustee and Company Determinations Final. Each determination provided for
in this Plan shall be made by the Trustees of the Profit-Sharing Plan or the
Company under such procedures as may from time to time be prescribed by such
Trustees or the Company, as the case may be, and shall be made in the absolute
discretion of such Trustees of the Company, as the case may be. Any such
determination shall be conclusive on all persons.
15. Amendment or Termination. The Company may in its sole discretion terminate
or amend this Plan from time to time. No such termination or amendment shall
change the credits to or adjustments of a participant's bookkeeping account as
set forth in Paragraph 3 or alter his or her right to receive a distribution
thereof in accordance with Paragraph 7; provided, however, that if the Company
is liquidated, it shall have the exclusive right to determine the value of each
participant's bookkeeping accounts, as of a date established by the Trustees
and to pay any unpaid distributions in any manner which the Trustees determine
to be just and equitable.
16. Successors. Unless otherwise agreed to, this Plan is binding on and will
inure to the benefit of any successor to the Company, whether by way of merger,
consolidation, purchase or otherwise.
17. Controlling Law. This Plan shall be construed in accordance with the laws
of the State of Illinois.
