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 NOVEMBER 30, 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 close of the period covered by this report
(applicable only to corporate issuers).
COMMON STOCK, $.625 PAR VALUE; ISSUED AND OUTSTANDING 123,070,536 AT
DECEMBER 31, 1994.
Page 1 of 10
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 November 30, 1994 and the Consolidated Condensed Statements of
Earnings for the three months ended November 30, 1994 and 1993, and the
Consolidated Condensed Statements of Cash Flows for the three months ended
November 30, 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)
November 30, August 31,
1994 1994
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 16,161 $ 77,915
Marketable securities, at cost which
approximates market 11,312 30,510
Accounts receivable, net of allowances
for doubtful accounts of $25,841,000 at
November 30 and $21,601,000 at August 31 223,384 193,930
Inventories 1,482,295 1,263,400
Other current assets 46,180 71,148
Total Current Assets 1,779,332 1,636,903
Property and Equipment, at cost, less
accumulated depreciation and amortization
of $539,546,000 at November 30 and
$511,754,000 at August 31 1,136,592 1,085,487
Other Non-Current Assets 187,534 150,451
TOTAL ASSETS $3,103,458 $2,872,841
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 35,000 $ -
Trade accounts payable 686,722 532,816
Other current liabilities 397,941 413,058
Total Current Liabilities 1,119,663 945,874
Non-Current Liabilities:
Deferred income taxes 141,764 137,741
Other non-current liabilities 239,085 215,586
Total Non-Current Liabilities 380,849 353,327
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 November 30 and August 31 76,919 76,919
Retained earnings 1,526,027 1,496,721
Total Shareholders' Equity 1,602,946 1,573,640
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $3,103,458 $2,872,841
========== ==========
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
November 30,
1994 1993
(Dollars in Thousands
Except Per Share Data)
Net Sales $2,405,556 $2,117,954
Costs and Deductions:
Cost of sales 1,740,764 1,528,152
Selling, occupancy and
administration 576,941 518,443
2,317,705 2,046,595
Other (Income) Expense:
Interest income (824) (1,010)
Interest expense 521 769
(303) (241)
Earnings before income tax provision 88,154 71,600
Income tax provision 34,160 27,387
Net Earnings $ 53,994 $ 44,213
=========== ===========
Per Share:
Net Earnings $ .44 $ .36
=========== ===========
Dividends Declared $ .195 $ .17
=========== ===========
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)
Three Months Ended
November 30,
1994 1993
(In Thousands)
Net cash provided by (used for) operating
activities $ 17,005 $ (5,717)
Cash (Used for) Provided by Investing Activities:
Additions to property and equipment (85,221) (72,361)
Investment in corporate-owned
life insurance (29,521)
Net sales of marketable securities 19,198 13,095
Proceeds from disposition of property and
equipment 3,251 1,795
Net cash used for investing activities (92,293) (57,471)
Cash (Used for) Provided by Financing Activities:
Cash dividends paid (20,922) (18,460)
Proceeds from notes payable 35,000 12,977
Other (544) (816)
Net cash provided by (used for) operating
activities 13,534 (6,299)
Changes in Cash and Cash Equivalents:
Net decrease in cash and cash equivalents (61,754) (69,487)
Cash and cash equivalents at beginning
of year 77,915 91,597
Cash and Cash Equivalents at end of period $ 16,161 $ 22,110
========== ==========
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) Certain amounts in the August 31, 1994 Consolidated Condensed Balance
Sheet have been reclassified to be consistent with the November 30, 1994
presentation.
(2) Inventories are valued on a lower of last-in, first-out (LIFO) cost or
market basis. At November 30, 1994 and August 31, 1994, inventories would
have been greater by $403,075,000 and $393,568,000, respectively, if they had
been valued on a lower of first-in, first-out (FIFO) cost or market basis. LIFO
inventory costs can only be determined 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) The weighted average number of common shares and equivalents used for
calculating primary net earnings per share was 123,533,000 and 123,726,000 for
the quarters ended November 30, 1994 and 1993, respectively. Fully diluted net
earnings per share are the same as primary net earnings per share.
(4) 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 85% 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 plus interest was entered in a patent infringement
suit against the company and its co-defendant supplier. The plaintiff
subsequently filed a motion for treble damages, which was denied. That denial
has been appealed. The case has also been appealed by the defendants, and
the company has an indemnification agreement from its supplier for the amount
of the judgment plus interest. 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.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net earnings for the first quarter of fiscal 1995 increased by 22.1% to
$53,994,000 or $.44 per share, compared to $.36 per share in the same
quarter last year. Earnings increases resulted from improved sales and
lower expense ratios, which were partially offset by lower gross margins.
Sales for the quarter ended November 30, 1994 increased 13.6% to
$2,405,556,000. 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. Comparable drugstore
sales gains were 7.8% for the quarter. New store openings accounted for
7.8% of the quarterly sales increase. The company operated 2,019 drugstores
as of November 30, 1994 compared to 1,889 a year earlier.
Pharmacy sales increased 19.4% for the first quarter with comparable store
sales increasing 12.9%. Prescription sales were 43.1% of total sales for
the quarter compared to 41.0% a year ago. 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 decreased to 27.6% of sales from 27.8% last year. Third party
prescription business continued to negatively affect pharmacy gross margins.
This more than offset 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 estimated annual inflation rates were 2.50% for fiscal 1995 and
2.75% for 1994, which resulted in charges to cost of sales of $9.5 million
versus $9.3 million for the same period a year ago.
Selling, occupancy and administration expenses decreased to 24.0% from
24.5% in the quarter. As a percent to sales, higher costs associated with
closing retail locations were more than offset by lower advertising and
store salaries. Store closing costs increased as a result of 22 store
closings in the first quarter compared to 10 a year ago.
The first quarter effective tax rate increased to 38.75% from 38.25%
primarily due to estimated interest on tax audits and discontinuance of the
targeted jobs credit effective December 31, 1994.
Financial Condition
Cash and cash equivalents and marketable securities were $16.2 million at
November 30, 1994 compared to $22.1 million at November 30, 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.
7
Net cash provided by operating activities was $17.0 million compared to $5.7
million used for operating activities a year ago. The company's ongoing
profitability is expected to continue supporting expansion and remodeling
programs, dividends to shareholders and the funding for various
technological improvements.
As a result of a recent tax court ruling concerning the depreciable lives of
certain assets, the company may be required to pay federal income taxes
related to prior years. The decision of the court is in the process of
being appealed. As of November 30, 1994, the company has adequately
provided for all the tax and related interest. Depending on the results of
the appeal, this could adversely impact the company's cash position by
approximately $50 million.
Net cash used for investing activities was $92.3 million for the first
quarter of fiscal 1995 versus $57.5 million last year. Additions to
property and equipments were $85.2 million compared to $72.4 million last
year. During the first quarter, a record 73 new or relocated drugstores
were opened. This compares to 63 new or relocated drugstores opened in the
same period last year. Planned capital expenditures for fiscal 1995 are
expected to be approximately $300 million. During the quarter, the company
also repaid $29.5 million of borrowings on corporate-owned life insurance.
The company recently entered two new markets; Cleveland, with 15 new
drugstores, and Buffalo, with 3 new stores. 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.
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. Healthcare Plus,
the company's managed care subsidiary, opened its second mail service
facility. This facility can fill 5,000 prescriptions per day and is
expandable to 15,000 per day. 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 February
1995. 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 provided by financing activities was $13.5 million compared to $6.3
million used for financing activities a year ago. During both quarters, the
company obtained funds through the placement of commercial paper. These
funds were used to finance working capital requirements.
At November 30, 1994, the company had $139 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 $101 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.
8
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 restated
effective October 12, 1994.
(b) Amendment No. 3 to the Walgreen Co. Restricted
Performance Share Plan (effective September 1, 1994).
(c) Walgreen Profit-Sharing Restoration Plan Amendment
No. 1 (effective October 12, 1994).
(d) Walgreen Section 162(m) Deferred Compensation Plan
(effective October 12, 1994).
(e) Agreement Dated October 13, 1994, between Walgreen Co.
and Charles D. Hunter.
27. Financial Data Schedule
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
which ended November 30, 1994.
9
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 January 12, 1995 R. L. Polark
Senior Vice President
(Chief Financial Officer)
Date January 12, 1995 R. H. Clausen
Controller
(Chief Accounting Officer)
10
WALGREEN MANAGEMENT INCENTIVE PLAN
(as restated effective October 12, 1994)
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 the fiscal
year plus at the end of each fiscal quarter of such
fiscal year divided by five.
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, and any such base salary earned
but deferred or reduced pursuant to a Company
Section 401(k) plan, or Section 125 plan, or a Company
deferral 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.
r. 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.
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 excep
tional 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 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.
d. 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.
(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.
e. After the end of each fiscal year when the computations
and accounting determinations required by paragraphs 3b,
3c and 3d 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 3g of the Plan and the
certifications provided for under the terms of paragraph
3f of the Plan.
f. 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.
g. 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.
h. 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.
i. 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 Co. Restricted Performance Share Plan
Amendment No. 3
I
A new Section 5.7 shall be added to the Plan to read as follows:
"Following the determination by the Committee
of the degree of attainment of the
performance requirements established prior to
the beginning of each Performance Period, the
Committee may, at its sole discretion,
negatively adjust the sizes of the awards
which otherwise would be payable based on the
degree of attainment of the performance
requirements; provided, however, that in no
event shall the Committee use its subjective
discretion to increase the awards payable as
determined pursuant to the preestablished
goals."
II
Section 9.2 of the Plan shall be amended to read as follows:
"Retirement, Death, Total and Permanent
Disability. Except as otherwise stated
herein, in the event that a participant
granted Shares and Cash hereunder terminated
employment with the Company because of normal
retirement, death, total and permanent
disability, or early retirement with the
consent of the Committee, any uncompleted
portion of a time period restriction, as set
forth in subsections 6.2 and 8.1., shall be
waived by the Company. Provided, however,
that in the event such a waiver on behalf of
a Covered Employee under Section 162(m) of
the Internal Revenue Code would result in the
loss of the performance based exception under
Section 162(m) and regulations promulgated
thereunder, no such waiver shall apply in
respect to a Covered Employee. The Shares
thereby released from the time period
restriction shall be thereafter freely
transferable by the Participant and the
restricted cash awards made pursuant to
subsection 8.1 shall be paid to the
Participant."
III
In all respects, except as otherwise set forth, the Plan shall
remain in force and effect.
WALGREEN PROFIT-SHARING RESTORATION PLAN AMENDMENT NO. 1
I
Section 3.1 (a) shall be amended effective October 12, 1994, to
read as follows:
(a) Nondiscrimination Limitations. The Company
shall pay the amounts, if any, which would be
contributed by the Company on the
Participant's behalf under the Profit-Sharing
Plan for the plan year of the Profit-Sharing
Plan, or portion thereof, which coincides
with the plan year hereunder (as adjusted by
Section 3.3) but which are not so contributed
solely because of the limitations of Section
401(a)(17), 401(k), 401(m), and 402(g) of the
Internal Revenue Code of 1986 (the "Code");
II
Section 3.1(b) shall be amended, effective October 12, 1994, to
read as follows:
(b) Contribution Limitations. The Company shall
pay the amounts, if any, which would be
contributed by the Company on the
Participant's behalf under the Profit-Sharing
Plan for the plan year of the Profit-Sharing
Plan, or portion thereof, which coincides
with the plan year hereunder (as adjusted by
Section 3.3), but which is not so contributed
solely because of the limitations of Section
415 of the Code;
III
A new section 3.3 shall be added to the Plan, effective October
12, 1994, to read as follows:
3.3 Adjustments for Mandatory Code Section 162(m) Deferrals.
For purposes of subsection 3.1(a) and subsection 3.1(b), the
amounts, if any, which would have been contributed for a
plan year by the Company to the Profit-Sharing Plan for a
Participant whose applicable remuneration (as defined in
Code Section 162(m)) for such plan year was subject to a
mandatory deferral pursuant to a Company plan, shall be
determined as though no such mandatory deferral had
occurred. In no event shall payments of such deferred
amounts while a Participant is an Active Participant in the
Profit-Sharing Plan be treated as compensation for purposes
of this Plan.
IV
In all respects, except as otherwise set forth, the Plan shall
remain in force and effect.
Section 162(m) Deferred
Compensation Plan
Walgreen Co.
October 1994
Contents
Page
Article 1. Establishment and Purposes 1
Article 2. Definitions 1
Article 3. Administration 2
Article 4. Bonus Deferral and Payment 3
Article 5. Deferred Compensation Accounts 3
Article 6. Rights of Participants 4
Article 7. Withholding of Taxes 5
Article 8. Amendment and Termination 5
Article 9. Miscellaneous 5
Walgreen Co.
Section 162(m) Deferred Compensation Plan
Article 1. Establishment and Purposes
1.1 Establishment. Walgreen Co., an Illinois corporation
(the Company), hereby establishes, effective as of September 1,
1994, a deferred compensation plan for key employees as described
herein, which shall be known as the Walgreen Co. Section 162(m)
Deferred Compensation Plan (the Plan).
1.2 Purpose. The primary purpose of the Plan is to provide
for mandatory deferrals of compensation by certain key employees
of the Company in order to preserve the Company's tax deduction
for such amounts under Section 162(m) of the Code.
Article 2. Definitions
Whenever used herein, the following terms shall have the
meanings
set forth below, and, when the defined meaning is intended, the
term is capitalized:
(a) Account or Deferred Compensation Account means an
individual bookkeeping account established and maintained for
each Participant pursuant to Article 5 herein.
(b) Board or Board of Directors means the Board of
Directors of
the Company.
(c) Code means the Internal Revenue Code of 1986, as amended.
(d) Committee means the Compensation Committee of the Board
or a subcommittee thereof, as appointed by the Board.
(e) Company means Walgreen Co., an Illinois corporation, and
any subsidiary of the Company.
(f) Compensation means all compensation or any other
remuneration for services performed by an Eligible Employee
which, as determined by the Committee, is subject to the
deduction limit under Code Section 162(m), any successor statute
and the regulations promulgated thereunder with respect to any
Year.
(g) Effective Date means the date the Plan becomes effective,
as set forth in Section 1.1 herein.
(h) Eligible Employee means a "Covered Employee" under Code
Section 162(m) and the regulations promulgated thereunder.
i) ERISA means the Employee Retirement Income Security Act
of 1974, as amended from time to time, or any successor Act
thereto.
(j) Participant means an Eligible Employee who is
participating in the Plan, as provided in Section 4.1 herein.
(k) Plan means the Walgreen Co. Section 162(m) Deferred
Compensation Plan.
(l) Year means the fiscal year of the Company.
Article 3. Administration
3.1 Authority of the Committee. The Plan shall be
administered by the Committee. The members of such Committee
shall be appointed by and shall serve at the discretion of the
Board.
Subject to the provisions herein, the Committee shall have
full power to determine which Eligible Employees of the Company
are Participants; to determine the terms and conditions of each
Employee's participation in the Plan; to construe and interpret
the Plan and any agreement or instrument entered into under the
Plan; to establish, amend, or waive rules and regulations for the
Plan's administration; to amend (subject to the provisions of
Article 8 herein) the terms and conditions of the Plan and any
agreement entered into under the Plan; and to make other
determinations which may be necessary or advisable for the
administration of the Plan.
Subject to the terms of the Plan, the Bylaws of the Company
and applicable law, the Committee may delegate any or all of its
authority granted under the Plan to any individual or entity,
including but not limited to an executive or executives of the
Company.
3.2 Decisions Binding. All determinations and decisions of
the Committee as to any disputed question arising under the Plan,
including questions of construction and interpretation, shall be
final, conclusive, and binding on all parties.
3.3 Indemnification. Each person who is or shall have been
a member of the Committee, or of the Board, shall be indemnified
and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a
party, or in which he or she may be involved by reason of any
action taken or failure to act under the Plan, and against and
from any and all amounts paid by him or her in settlement
thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend
the same before he or she undertakes to handle and defend it on
his or her own behalf.
The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Articles of
Incorporation or Bylaws, as a matter of law or otherwise, or any
power that the Company may have to indemnify them or hold them
harmless.
Article 4. Bonus Deferral and Payment
4.1 Eligibility and Participation. Those Eligible Employees
whose Compensation exceeds one million dollars ($1,000,000) in
any taxable year of the Company, as determined by the Committee,
shall automatically be deemed to be Participants in the Plan as
of the date such Compensation exceeded one million dollars
($1,000,000).
4.2 Amount Deferred. The Committee may designate that up to
and including one hundred percent (100%) of Compensation in
excess of one million dollars ($1,000,000) payable to a
Participant in any Year shall be deferred pursuant to the terms
of the Plan.
4.3 Length of Deferral. Compensation deferred under the
terms of the Plan shall be deferred until the date such
Participant's Compensation is no longer subject to the deduction
limit under Code Section 162(m), as determined by the Committee.
4.4 Payment of Deferred Amounts. Payment of deferred
amounts together with interest earned thereon at the end of the
deferral period shall be made in cash in one (1) lump sum within
thirty (30) calendar days after the date such Participant is no
longer a Covered Employee under Code Section 162(m), as
determined by the Committee; provided, however, that the
Committee may delay payment to such later date as necessary to
avoid the application of the deduction limit under Section 162(m)
with respect to Compensation paid to such Participant.
Article 5. Deferred Compensation Accounts
5.1 Participants' Accounts. The Committee shall establish
and maintain
an individual bookkeeping Account for each Participant deferring
Compensation
under Article 4 herein. Each Account shall be credited as of the
date the amount of Compensation deferred otherwise would have
become due and payable to the Participant.
5.2 Interest on Deferred Amounts. Compensation deferred
under Article 4 shall accrue interest on a monthly basis at a
monthly compounding rate equal to the prime lending rate of
interest in effect as of the first business day of that month (as
quoted by the Company's then current leading bank financing
source for commercial borrowings), plus the excess of the prime
lending rate over The Federal Funds Rate or such other rate
determined by the Committee. Each Participant's Deferred
Compensation Account shall be credited on the last day of each
month, with interest computed on that month's beginning balance.
Interest earned on deferred amounts shall be paid out to
Participants at the same time and in the same manner as the
underlying deferred amounts.
5.3 Charges Against Accounts. There shall be charged
against each Participant's Account any payments made to the
Participant or to his or her beneficiary.
5.4 Designation of Beneficiary. Each Participant shall
designate a beneficiary or beneficiaries who, upon the
Participant's death, will receive the amounts that otherwise
would have been paid to the Participant under the Plan. All
designations shall be signed by the Participant, and shall be in
such form as prescribed by the Committee. Each designation shall
be effective as of the date delivered to the Senior Vice
President, Human Resources, of the Company or such other officer
as may be designated by the Committee.
Participants may change their designations of beneficiary on
such form as prescribed by the Committee. The payment of amounts
deferred under the Plan shall be in accordance with the last
unrevoked written designation of beneficiary that has been signed
by the Participant and delivered by the Participant to the Senior
Vice President Human Resources, of the Company or such other
officer as may be designated by the Committee, prior to the
Participant's death.
In the event that all the beneficiaries named by a
Participant pursuant to this Section 5.4 predecease the
Participant, the amounts that would have been paid to the
Participant or the Participant's beneficiaries hereunder shall be
paid to the Participant's estate.
In the event a Participant does not designate a beneficiary,
or for any reason such designation is ineffective, in whole or in
part, the amounts that otherwise would have been paid to the
Participant or the Participant's beneficiaries under the Plan
shall be paid to the Participant's estate.
Article 6. Rights of Participants
6.1 Contractual Obligation. The Plan shall create a
contractual obligation on the part of the Company to make
payments from the Participants' Accounts when due. Payment of
deferred amounts and interest earned thereon shall be made out of
the general funds of the Company.
6.2 Unsecured Interest. No Participant or party claiming an
interest in deferred amounts and interest earned thereon or the
Account of a Participant shall have any interest whatsoever in
any specific asset of the Company. To the extent that any party
acquires a right to receive payments under the Plan, such right
shall be equivalent to that of an unsecured general creditor of
the Company.
6.3 Employment. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any
Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company.
Article 7. Withholding of Taxes
The Company shall have the right to require Participants to
remit to the Company an amount sufficient to satisfy Federal,
state, and local withholding tax requirements, or to deduct from
all payments made pursuant to the Plan amounts sufficient to
satisfy withholding tax requirements.
Article 8. Amendment and Termination
The Company hereby reserves the right to amend, modify, or
terminate the Plan at any time by action of the Committee. Except
as described below in this Article 8, no such amendment or
termination shall in any material manner adversely affect any
Participant's rights accrued with respect to deferred amounts and
interest earned thereon without the consent of the Participant.
The Plan is intended to be an unfunded plan maintained
primarily to provide deferred compensation benefits for a select
group of management or highly compensated employees within the
meaning of Sections 201, 301, and 401 of ERISA, and therefore, to
be exempt from the provisions of Parts 2, 3, and 4 of Title I of
ERISA. Accordingly, the Board may terminate the Plan and commence
termination payout for all or certain Participants, or remove
certain employees as Participants, if it is determined by the
United States Department of Labor or a court of competent
jurisdiction that the Plan constitutes an employee pension
benefit plan within the meaning of Section 3(2) of ERISA which is
not so exempt. If payout is commenced pursuant to the operation
of this Article 8, the payment of such amounts shall be made as
provided under Section 4 herein.
Article 9. Miscellaneous
9.1 Effect on Other Benefit Plans. Amounts deferred under
this Plan shall not be considered compensation for the purposes
of any qualified plan maintained by the Company. Such amounts
shall be considered compensation for the purposes of other
employee benefit plans or programs, unless specifically excluded
by the provisions of such plans or programs.
9.2 Notice. Any notice or filing required or permitted to
be given to the Company under the Plan shall be sufficient if in
writing and hand delivered, or sent by registered or certified
mail to the Senior Vice President, Human Resources of the Company
or such other officer as may be designated by the Committee.
Notice to the Senior Vice President, Human Resources of the
Company or such other officer, if mailed, shall be addressed to
the principal executive offices of the Company. Notice mailed to
a Participant shall be at such address as is given in the records
of the Company. Notices shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
9.3 Nontransferability. Participants' rights to deferred
amounts and interest earned thereon under the Plan may not be
sold, transferred, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. In no event shall the Company make any payment
under the Plan to any assignee or creditor of a Participant.
9.4 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality
or invalidity shall not affect the remaining parts of the Plan,
and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
9.5 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include
the feminine; the plural shall include the singular, and the
singular shall include the plural.
9.6 Costs of the Plan. All costs of implementing and
administering the Plan shall be borne by the Company.
9.7 Successors. All obligations of the Company under the
Plan shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
9.8 Applicable Law. The Plan shall be governed by and
construed in accordance with the laws of the state of Illinois.
THIS AGREEMENT, dated this 13th day of October, 1994, by and
between WALGREEN CO., an Illinois corporation (the "Company"),
party of the first part, and Charles D. Hunter of Palatine
Township, Illinois (the "Employee"), party of the second part,
WITNESSETH:
WHEREAS, the Employee has been continuously in the employ of
the Company since 1967 and is presently serving as Vice Chairman
of the Company; and
WHEREAS, the Company desires that, if the Employee remains
in its employ until his retirement, the Employee shall during the
ensuing three years be available to the Company for advice and
counsel as reasonably requested; and
WHEREAS, upon the terms and conditions hereinafter set
forth, the Employee is willing to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements of the parties herein contained,
it is hereby agreed as follows:
1. The term "retirement date", as used in this Agreement,
means the "pay through" date as shall be designated on Walgreen
payroll form 889 covering Employee or such earlier date upon
which the Employee retires from active service with the Company
with the prior written consent of the Board of Directors of the
Company. When it becomes known the "pay through" date shall be
attached as an addendum to this Agreement by the Company
Secretary.
2. Until his retirement date, provided the Employee
continues in the employ of the Company, the Employee shall devote
substantially his entire business time and attention to the
business and affairs of the Company and its subsidiaries and
shall perform such duties as reasonably may be assigned by the
Board of Directors and will serve in such corporate offices to
which he may be elected.
3. The Employee agrees that, for a period of three (3)
years from and after his retirement date, provided he continues
in the employ of the Company until such date, he will be
available at reasonable times upon reasonable notice by the
Company for consultation with personnel of the Company and for
special services to the Company and its subsidiaries such as
surveys and the formulation and development of special programs
pertaining to activities of the Company. As compensation for
such services, the Company agrees to pay to the Employee, in
equal monthly installments a sum equal in the aggregate to the
annual base salary rate received by the Employee in the last year
prior to his retirement date. Such compensation shall be in
addition to any benefits to which the Employee may be entitled
under any pension, profit sharing, option or other plans of the
Company.
4. The Employee agrees that, during the period of this
agreement, he will not directly or indirectly, whether as
principal, agent, partner, officer, director, employee,
stockholder of in excess of 1/2 of 1% of the outstanding stock,
or member, engage in any business or activity which, in the
opinion of the Board of Directors of the Company, shall be
competitive with or adverse to the interests of any business
conducted by the Company or any of its subsidiaries, except with
the prior written consent of the Board of Directors of the
Company.
5. This agreement and, except as hereinafter provided all
obligations of the Company hereunder, shall terminate if prior to
the Employee's retirement date, he shall voluntarily leave the
employ of the Company or shall be discharged from his employment,
or shall assign any of his rights hereunder, or if after the
Employee's retirement date, he shall breach his agreement
contained in Section 4 hereof.
If before or after retirement the Employee should by reason
of physical disability be unable to perform his duties, the
Company shall be obligated to commence, or complete, as may be
applicable, the payments specified in Section 3 hereof.
If before or after retirement the Employee should die, the
Company shall thereafter be obligated to commence, or complete,
as may be applicable, payments to the beneficiary of the
Employee, hereinafter named, in sums equal to one-half of the
amounts which the Employee would have received, if living, as
specified in Section 3 hereof.
6. This agreement shall be binding upon the parties hereto
and the corporate successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have duly executed this
agreement the day and year first above written.
WALGREEN CO.
By John A. Rubino Charles D. Hunter
Vice President Charles D. Hunter
Attest:
Julian A. Oettinger
Secretary
The undersigned Charles D. Hunter, as the Employee in the
attached Agreement, hereby designates the then acting Trustee
under a Declaration of Trust dated September 15, 1982 under which
Charles D. Hunter was named Trustee as his beneficiary under the
provisions of Paragraph 5 thereof. The undersigned further
reserves the right to change beneficiaries or successor
beneficiaries from time to time during the term of the Agreement.
Dated this 13th day of October, 1994.
Charles D. Hunter
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