S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995.
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period From _________________ to _______________
Commission file number 1-604.
WALGREEN CO.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1924025
(State of incorporation) (I.R.S. Employer Identification No.)
200 WILMOT ROAD, DEERFIELD, ILLINOIS 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 940-2500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NEW YORK STOCK EXCHANGE
COMMON STOCK ($.3125 PAR VALUE) CHICAGO STOCK EXCHANGE
NEW YORK STOCK EXHCANGE
PREFERRED SHARE PURCHASE RIGHTS CHICAGO STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
AS OF OCTOBER 31, 1995, THERE WERE 246,141,072 SHARES OF WALGREEN CO.
COMMON STOCK, PAR VALUE $.3125 PER SHARE, ISSUED AND OUTSTANDING AND THE
AGGREGATE MARKET VALUE OF SUCH COMMON STOCK HELD BY NON-AFFILIATES (BASED UPON
THE CLOSING TRANSACTION PRICE ON THE NEW YORK STOCK EXCHANGE) WAS APPROXIMATELY
$6,852,772,000.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31,
1995, ONLY TO THE EXTENT EXPRESSLY SO STATED HEREIN, ARE INCORPORATED BY
REFERENCE INTO PARTS I, II AND IV OF FORM 10-K. PORTIONS OF THE REGISTRANT'S
PROXY STATEMENT FOR ITS 1995 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY
10, 1996, ARE INCORPORATED BY REFERENCE INTO PART III OF FORM 10-K.
PART I
Item 1. Description of Business
(a) General development of business.
Walgreen Co. (the "company" or "Walgreens") is America's largest drugstore
retailer and during the fiscal year ended August 31, 1995, had net sales of
$10,395,096,000. The company served customers in 31 states and Puerto Rico
through 2,083 retail drugstores and 2 mail order facilities.
In fiscal 1995, the company opened 205 new drugstores and one mail service
facility, completed remodelings of 84 units, and closed 88 drugstores and one
mail service facility. In the last five fiscal years, the company has opened
763 new drugstores, 2 new mail service facilities, acquired 24 stores, completed
remodelings of 543 units and closed 263 drugstores and one mail service
facility. In addition, two major distribution centers were added during the
five-year period and one was closed.
Prescription sales were 43.4% of total sales for fiscal 1995 compared to
40.8% in 1994 and 38.2% in 1993. Pharmacy sales trends are expected to continue
primarily because of expansion into new markets, increased penetration in
existing markets and demographic changes such as the aging population.
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. Plans
during fiscal 1996 include opening 10 to 15 stores each in the new Dallas/Fort
Worth and Las Vegas markets, as well as four to five in Portland, Oregon. By
the end of fiscal 1996 more than 400 stores are expected to offer one-hour
photofinishing. Store implementation of Intercom Plus, an advanced pharmacy
computer and workflow system, is expected to be completed in fiscal 1997.
Healthcare Plus, the company's managed care subsidiary, has formed its own PBM
(pharmacy benefits manager) network and will begin serving new plans in January.
(b) Financial information about industry segments.
The company's primary business is the operation of retail drugstores.
(c) Narrative description of business.
(i) Principal products produced and services rendered.
The drugstores are engaged in the retail sale of prescription
and nonprescription drugs and carry additional product lines such
as general merchandise, liquor and beverages, cosmetics, toiletries
and tobacco.
1
The estimated contributions of various product classes to sales
for each of the last three fiscal years are as follows:
Percentage
Product Class 1995 1994 1993
Prescription Drugs 43% 41% 38%
General Merchandise * 24 24 25
Nonprescription Drugs * 13 13 14
Liquor, Beverages 8 9 10
Cosmetics, Toiletries * 8 9 9
Tobacco Products * 4 4 4
Total Sales 100% 100% 100%
====== ====== ======
* Estimated based, in part, on periodic sampling of
about 1% of retail units.
(ii) Status of a product or segment.
Not applicable.
(iii) Sources and availability of raw materials.
Inventories are purchased from numerous domestic and foreign
suppliers. The loss of any one supplier or group of suppliers under
common control would not have a material effect on the business.
Fuel and other sources of energy are relied upon for the
distribution of merchandise and in the general operations of the
retail stores. Increased energy costs over the years have not
materially increased the costs of operations.
(iv) Patents, trademarks, licenses, franchises and concessions
held.
Walgreens markets products under various trademarks and trade
names and holds assorted business licenses (pharmacy, occupational,
liquor, etc.) having various lives, which are necessary for the normal
operation of business.
(v) Seasonal variations in business.
The business is seasonal in nature, with Christmas generating
a higher proportion of sales and earnings than other periods. See the
caption "The Walgreen Year...A Review by Quarters" on Page 30 of the
Annual Report to Shareholders for the year ended August 31, 1995 ("Annual
Report"), which is ncorporated herein by reference.
(vi) Working capital practices.
During fiscal 1995 the company did obtain funds through the
placement of commercial paper. The company generally finances its
inventory and expansion needs with internally generated funds. However,
short-term borrowings are anticipated during fiscal 1996 to support
working capital needs.
2
Due to the nature of the retail drugstore business, sales are
principally for cash. Customer returns are immaterial.
(vii) Dependence upon limited number of customers.
Sales are to numerous customers which include health maintenance
organizations (HMOs); therefore, the loss of any one customer or a group
of customers under common control would not have a material effect on the
business. No customer accounts for ten percent or more of the company's
consolidated revenue.
(viii) Backlog Orders.
Not applicable.
(ix) Government contracts.
The company is not a party to any significant government
contracts.
(x) Competitive conditions.
The drug store industry is highly competitive. As one of the volume
leaders in the retail drug industry, Walgreens competes with various
retailers, including chain and independent drugstores, mail order
prescription providers, grocery, variety and discount department stores.
Competition remained keen during the fiscal year with the company
competing on the basis of price, convenience and variety. The company's
geographic dispersion tends to offset the impact of temporary economic
and competitive conditions in individual markets.
Sales by geographic area for fiscal 1995 were as follows:
Percent
State of Sales
Florida 19
Illinois 16
Texas 8
Arizona 7
California 6
Wisconsin 5
25 other states and Puerto Rico 39
100
===
(xi) Research and development activities.
The company does not engage in any material research activities.
(xii) Environmental disclosures.
Federal, state and local environmental protection requirements
have no material effect upon capital expenditures, earnings or
competitive position of the company.
(xiii) Number of employees.
The company employs approximately 68,800 persons, about 22,800
of whom are part-time employees working less than 30 hours per week.
3
(d) Financial information about foreign and domestic operations and
export sales.
All the company sales occur within the continental United States
and Puerto Rico. There are no export sales.
Item 2. Properties
The number and location of the company's drugstores is incorporated by
reference to the table under the caption "Walgreens Nationwide" on page 33 of
the Annual Report. Most of the company's drugstores are leased. The leases are
for various terms and periods. See the caption, "Leases" on page 26 of the
Annual Report, which section is incorporated herein by reference. The company
owns approximately 5% of the retail stores open at August 31, 1995. The
decision has been made to purchase, rather than lease, more store locations than
in the past. The company has an aggressive expansion program of adding new
stores and remodeling and repositioning existing stores. Net selling space of
drugstores was increased from 19.3 million to 20.7 million square feet at August
31, 1995. Over the past five years, approximately 60% of company stores have
been opened or remodeled.
The company's retail drugstore operations are supported by nine warehouses
with a total of approximately 3,385,000 square feet of space, of which 2,430,000
square feet is owned. The remaining space is leased with an option to buy. All
warehouses are served by electronic data processing systems for order processing
control, operating efficiencies and rapid merchandise delivery to stores. All
stores receive merchandise within two days of ordering. In addition, the
company uses public warehouses to handle distribution needs. In 1995, the
company opened the ninth warehouse in Woodland, California and added additional
warehouse space in Orlando, Florida. Distribution capacity is adequate now, but
as the company continues to expand, additional space will be needed to maintain
service levels. Studies are ongoing to determine where and when distribution
space will be added.
The company owns one mail service facility with a ground sublease and
leases a second facility. The combined square footage of the facilities is
approximately 120,000 square feet. There are four principal office facilities
containing approximately 500,000 square feet of which 400,000 square feet is
owned and the remainder is leased. The mail order and office facilities are
adequate for current needs.
Item 3. Legal Proceedings
The information in response to this item is incorporated herein by
reference to the caption "Contingencies" on page 27 of the Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
4
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to each executive
officer of the company as of August 31, 1995:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
Charles R. Walgreen III 59 Chairman of the Board,
Chairman of the Board since April Chief Executive Officer
1976 and Director
Chief Executive Officer since 1971
Director since 1963
L. Daniel Jorndt 54 President, Chief
Operating Officer and
President and Chief Operating Director
Officer since February 1990
Director since January 1990
Vernon A. Brunner 55 Executive Vice President
Executive Vice President since
February 1990
Glenn S. Kraiss 62 Executive Vice President
Executive Vice President since
February 1990
John R. Brown 59 Senior Vice President
Senior Vice President since
May 1985
Roger L. Polark 47 Senior Vice President
Senior Vice President and and Chief Financial
Chief Financial Officer since Officer
February 1995
Vice President since June 1988
John A. Rubino 54 Senior Vice President
Senior Vice President since July 1991
Vice President
October 1984 to July 1991
William A. Shiel 44 Senior Vice President
Senior Vice President since July 1993
Vice President
May 1985 to July 1993
Robert C. Atlas 60 Vice President
Vice President since September 1987
David W. Bernauer 51 Vice President
Chief Information Officer since
February 1995
Vice President since February 1990
Treasurer
February 1990 to June 1992
5
EXECUTIVE OFFICERS OF THE REGISTRANT - continued:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
W. Lynn Earnest 52 Vice President and
Vice President and Treasurer Treasurer
since July 1992
Regional Vice President
July 1980 to June 1992
Robert H. Halaska 55 Vice President
Vice President since April 1995
President, Walgreens Healthcare Plus,
Inc. since September 1991
Senior Vice President, Sales &
Marketing, Blue Cross/Blue
Shield of Illinois
February 1985 to September 1991
Jerome B. Karlin 53 Vice President
Vice President since September 1987
Julian A. Oettinger 56 Vice President,
Vice President, Secretary and Secretary and
General Counsel since January 1989 General Counsel
Roger H. Clausen 53 Controller
Controller since June 1988
There is no family relationship between any of the aforementioned officers
of the company.
6
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The company's common stock is traded on the New York and Chicago
Stock Exchanges under the symbol WAG. As of October 31, 1995 there were
33,339 recordholders of company common stock according to the records
maintained by the company's transfer agent.
The range of the sales prices of the company's common stock by
quarters and the cash dividends declared per common share during the two
years ended August 31, 1995 are as follows:
Dividends Common Stock Prices
Declared 1995 1994
Quarter Ended 1995 1994 High Low High Low
November $.0975 $.085 $21 3/16 $18 1/2 $21 11/16 $18 7/16
February .0975 .085 24 20 1/4 21 1/8 18 7/8
May .0975 .085 24 13/16 22 13/16 21 3/8 19 15/16
August .0975 .085 26 9/16 23 5/8 20 5/16 17 1/16
Fiscal Year $. 39 $. 34 $26 9/16 $18 1/2 $21 11/16 $17 1/16
==========================================================================
Item 6. Selected Financial Data
The information in response to this item is incorporated herein by
reference to the caption "Eleven-Year Summary of Selected Consolidated
Financial Data" on pages 18 and 19 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information in response to this item is incorporated herein by
reference to the caption "Management's Discussion and Analysis of Results
of Operations and Financial Condition" on pages 20 and 21 of the Annual
Report.
Item 8. Financial Statements and Supplementary Data
See Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
7
PART III
The information required for Items 10, 11 and 12, with the
exception of the information relating to the executive officers of the
Registrant, which is presented in Part I under the heading "Executive
Officers of the Registrant", is incorporated herein by reference to the
following sections of the Registrant's Proxy Statement:
Captions in Proxy Proxy Page Numbers
Names and ages of Director nominees,
their principal occupations and
other information 2
Securities Ownership of Directors and Executive 4 - 5
Officers
Executive Compensation 6 - 13
8
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report
(1) The following financial statements, supplementary data, and auditors'
report appearing in the Annual Report are incorporated herein by
reference.
Annual Report
Page Number
Consolidated Statements of Earnings and Retained Earnings 22
for the years ended August 31, 1995, 1994 and 1993
Consolidated Balance Sheets at August 31, 1995 and 1994 23
Consolidated Statements of Cash Flows 24
for the years ended August 31, 1995, 1994 and 1993
Statement of Major Accounting Policies 25 - 26
Notes to Consolidated Financial Statements 26 - 28
Report of Independent Public Accountants 29
Summary of Quarterly Results for the years ended 30
August 31, 1995 and 1994 (Unaudited)
Walgreens Nationwide 33
(2) The following financial statement schedule and related auditors'
report are included herein.
10-K
Page Number
Schedule II Valuation and Qualifying Accounts 14
Report of Independent Public Accountants on Supplemental 15
Schedule
Schedules I, III, IV and V are not submitted because they are not
applicable or not required or because the required information is
included in the Financial
Statements in (1) above or notes thereto.
Other Financial Statements -
Separate financial statements of the registrant have been omitted
because it is primarily an operating company, and all its subsidiaries
are included in the consolidated financial statements.
9
(3) Exhibits 10(a) through 10(n) constitute management contracts or
compensatory plans or arrangements required to be filed as exhibits
pursuant to Item 14(c) of this Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ending August 31, 1995.
(c) Exhibits
3. (a) Articles of Incorporation of the company, as amended.
(b) By-Laws of the company, as amended and restated effective as
of February 1, 1990, filed as Exhibit 4.03 to the company's
Form S-8 Registration Statement on July 15, 1992
(Registration No. 33-49676), and incorporated by reference
herein.
4. (a) (i) Walgreen Co. Debt Securities Indenture dated as of
May 1, 1986, between the company and Harris Trust and
Savings Bank, Trustee, filed with the Securities and
Exchange Commission as Exhibit 4(c) to the company's
Form S-3 Registration Statement on May 22, 1986
(Registration No. 33-5903), and incorporated by
reference herein.
(ii) Walgreen Co. Resolutions of Pricing Committee Relating
to Debt Securities, filed with the Securities and
Exchange Commission as Exhibit 4(a) to the company's
Current Report on Form 8-K dated June 17, 1986
(File No. 1-604), and incorporated by reference herein.
(b) (i) Rights Agreement dated as of July 9, 1986, between the
company and Harris Bank and Trust Company, filed with
the Securities and Exchange Commission as Exhibit (1) to
Registration Statement on Form 8-A on August 15, 1986
(File No. 1-604), and incorporated by reference herein.
(ii) Amendment to Rights Agreement dated as of October 18,
1988, between the company and Harris Bank and Trust
Company. (Note 5)
10. (a) Top Management Long-Term Disability Plan. (Note 3)
(b) Executive Short-Term Disability Plan Description. (Note 3)
________________________________________________________________________________
See Notes on page 13.
10
(c) Walgreen Management Incentive Plan (as restated effective
October 12, 1994), filed with the Securities and Exchange
Commission as Exhibit 10(a) to the company's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1994, and
incorporated by reference herein.
(d) (i) Walgreen Co. Restricted Performance Share Plan and
amendments thereto effective October 18, 1988 and July
8, 1992, filed with the Securities and Exchange
Commission as Exhibit 10(d) to the company's Annual
Report on Form 10-K for the fiscal year ended August
31, 1992, and incorporated by reference herein.
(ii) Amendment No. 3 to the Walgreen Co. Restricted
Performance Share Plan (effective September 1, 1994),
filed as Exhibit 10(b) to the company's Quarterly
Report on Form 10-Q for the quarter ended November 30,
1994, and incorporated by reference herein.
(e) Walgreen Co. Executive Stock Option Plan (as amended
effective October 13, 1992) filed with the Securities and
Exchange Commission as Exhibit 19 to the company's Quarterly
Report on Form 10-Q for the quarter ended February 28, 1993,
and incorporated by reference herein.
(f) (i) Walgreen Co. 1986 Director's Deferred Fee/Capital
Accumulation Plan. (Note 1)
(ii) Walgreen Co. 1987 Director's Deferred Fee/Capital
Accumulation Plan. (Note 2)
(iii) Walgreen Co. 1988 Director's Deferred Fee/Capital
Accumulation Plan. (Note 4)
(iv) Walgreen Co. 1992 Director's Deferred Retainer
Fee/Capital Accumulation Plan. (Note 8)
(g) (i) Walgreen Co. 1986 Executive Deferred
Compensation/Capital Accumulation Plan. (Note 1)
(ii) Walgreen Co. 1988 Executive Deferred
Compensation/Capital Accumulation Plan. (Note 4)
(iii) Amendments to Walgreen Co. 1986 and 1988 Executive
Deferred Compensation/Capital Accumulation Plans.
(Note 6)
(iv) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan Series 1. (Note
8)
(v) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan Series 2. (Note
8)
(h) Walgreen Co. Executive Deferred Profit-Sharing Plan (as
restated effective April 13, 1994), filed with the Securities
and Exchange Commission as Exhibit 10(b) to the company's
Quarterly Report on Form 10-Q for the quarter ended May 31,
1994, and incorporated by reference herein.
________________________________________________________________________________
See Notes on page 13.
11
(i) (i) Form of Change of Control Employment Agreements. (Note
5)
(ii) Amendment to Employment Agreements adopted July 12,
1989. (Note 7)
(j) Walgreen Select Senior Executive Retiree Medical Expense
Plan. (Note 6)
(k) (i) Walgreen Co. Profit-Sharing Restoration Plan (restated
effective January 1, 1993), filed with the Securities
and Exchange Commission as Exhibit 10(k) to the
company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993, and incorporated by
reference herein.
(ii) Walgreen Profit Sharing Restoration Plan Amendment No.
1 (effective October 12, 1994), filed as Exhibit 10(c)
to the company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1994, and incorporated by
reference herein.
(l) Walgreen Co. Retirement Plan for Outside Directors. (Note 7)
(m) Walgreen Section 162(m) Deferred Compensation Plan (effective
October 12, 1994), filed with the Securities and Exchange
Commission as Exhibit 10(d) to the company's Quarterly Report
on Form 10-Q for the quarter ended November 30, 1994, and
incorporated by reference herein.
(n) Agreement dated October 13, 1994, by and between Walgreen Co.
and Charles D. Hunter (for consulting services), filed with
the Securities and Exchange Commission as Exhibit 10(e) to
the company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1994, and incorporated by reference
herein.
11. The required information for this Exhibit is contained in the
Consolidated Statements of Earnings and Retained Earnings for the
years ended August 31, 1995, 1994 and 1993 and also in the
Statement of Major Accounting Policies, each appearing in the
Annual Report and previously referenced in Part IV, Item 14,
Section (a)(1).
13. Annual Report to shareholders for the fiscal year ended August 31,
1995. This report, except for those portions thereof which are
expressly incorporated by reference in this Form 10-K, is being
furnished for the information of the Securities and Exchange
Commission and is not deemed to be "filed" as a part of the filing
of this Form 10-K.
21. Subsidiaries of the Registrant.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
________________________________________________________________________________
See Notes on page 13.
12
NOTES
(Note 1) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1986 (File No. 1-604),
and incorporated by reference herein.
(Note 2) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1986 (File No. 1-604),
and incorporated by reference herein.
(Note 3) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1990 (File No. 1-604),
and incorporated by reference herein.
(Note 4) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1987 (File No. 1-604),
and incorporated by reference herein.
(Note 5) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Current Report on Form 8-K
dated October 18, 1988 (File No. 1-604), and incorporated
by reference herein.
(Note 6) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1988 (File No. 1-604),
and incorporated by reference herein.
(Note 7) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1989 (File No.
1-604), and incorporated by reference herein.
(Note 8) Filed with the Securities and Exchange Commission as
Exhibit 10 to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1992, and incorporated by
reference herein.
13
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(Dollars in Thousands)
Additions
Balance at Charged to Balance at
Beginning Costs and End
Classification of Period Expenses Deductions of Period
Allowances deducted from receivables
for doubtful accounts -
Year ended August 31, 1995 $ 21,601 $ 7,499 $ (4,467) $ 24,633
======== ======== ========= ========
Year ended August 31, 1994 $ 23,050 $ 4,018 $ (5,467) $ 21,601
======== ======== ========= ========
Year ended August 31, 1993 $ 19,059 $ 12,287 $ (8,296) $ 23,050
======== ======== ========= ========
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders of Walgreen Co.:
We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements
included in Walgreen Co. and Subsidiaries' annual report to
shareholders incorporated by reference in this Form 10-K,
and have issued our report thereon dated September 29, 1995.
Our report on the financial statements includes an
explanatory paragraph with respect to the changes in the
methods of accounting for postretirement benefits other than
pensions and income taxes as discussed in the Statement of
Major Accounting Policies, under "Accounting Changes". Our
audits were made for the purpose of forming an opinion on
those statements taken as a whole. The supplemental schedule
II included in this Form 10-K is the responsibility of the
company's management and is presented for purposes of
complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements.
The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein
in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
September 29, 1995
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WALGREEN CO.
(Registrant)
By ______R. L. Polark_______ Date: November 22, 1995
R. L. Polark
Senior Vice President
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant, and in the capacities and on the dates indicated.
Name Title Date
_____C. R. Walgreen III____ Chairman of the Board, Chief November 22, 1995
C. R. Walgreen III Executive Officer and Director
_____L. D. Jorndt__________ President, Chief Operating November 22, 1995
L. D. Jorndt Officer and Director
_____Roger H. Clausen______ Controller November 22, 1995
Roger H. Clausen
_____Theodore Dimitriou____ Director November 22, 1995
Theodore Dimitriou
_____James J. Howard_______ Director November 22, 1995
James J. Howard
_____C. D. Hunter__________ Director November 22, 1995
C. D. Hunter
_____Cordell Reed__________ Director November 22, 1995
Cordell Reed
_____John B. Schwemm_______ Director November 22, 1995
John B. Schwemm
_____William H. Springer___ Director November 22, 1995
William H. Springer
_____Marilou M. von Ferstel Director November 22, 1995
Marilou M. von Ferstel
16
INDEX TO EXHIBITS
A. DOCUMENTS FILED WITH THIS REPORT
Exhibit 3 (a) Articles of Incorporation of the company,
as amended.
Exhibit 13 Annual Report to Shareholders for the Fiscal
Year Ended August 31, 1995.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 23 Consent of Independent Public Accountants.
Exhibit 27 Financial Data Schedule.
B. DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 3(b) By-Laws of the company, as amended and restated.
Exhibit 4(a)(i) Walgreen Co. Debt Securities Indenture dated
as of May 1, 1986, between the company and
Harris Trust and Savings Bank, Trustee.
Exhibit 4(a)(ii) Walgreen Co. Resolutions of Pricing Committee
Relating to Debt Securities.
Exhibit 4(b)(i) Rights Agreement dated as of July 9, 1986,
between the company and Harris Bank and Trust
Company.
Exhibit 4(b)(ii) Amendment to Rights Agreement dated as of
October 18, 1988, between the company and Harris
Bank and Trust Company.
Exhibit 10 Material Contracts
(a) Top Management Long-Term Disability Plan.
(b) Executive Short-Term Disability Plan
Description.
(c) Walgreen Management Incentive Plan,
as restated.
(d) (i) Walgreen Co. Restricted Performance Share
Plan, as amended.
(ii) Amendment No. 3 to the Walgreen Co.
Restricted Performance Share Plan.
(e) Walgreen Co. Executive Stock Option Plan,
as amended.
(f) (i) Walgreen Co. 1986 Director's Deferred
Fee/Capital Accumulation Plan.
(ii) Walgreen Co. 1987 Director's Deferred
Fee/Capital Accumulation Plan.
(iii) Walgreen Co. 1988 Director's Deferred
Fee/Capital Accumulation Plan.
(iv) Walgreen Co. 1992 Director's Deferred
Retainer Fee/Capital Accumulation Plan.
(g) (i) Walgreen Co. 1986 Executive Deferred
Compensation/Capital Accumulation
Plan.
(ii) Walgreen Co. 1988 Executive Deferred
Compensation/Capital Accumulation
Plan.
(iii) Amendments to Walgreen Co. 1986 and
1988 Executive Deferred Compensation/
Capital Accumulation Plans.
(iv) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan
Series 1.
(v) Walgreen Co. 1992 Executive Deferred
Compensation/Capital Accumulation Plan
Series 2.
(h) Walgreen Co. Executive Deferred
Profit-Sharing Plan, as restated.
(i) (i) Form of Change of Control Employment
Agreements.
(ii) Amendment to Employment Agreements.
(j) Walgreen Select Senior Executive
Retiree Medical Expense Plan.
(k) (i) Walgreen Co. Profit-Sharing Restoration
Plan, as restated.
(ii) Walgreen Profit Sharing Restoration Plan
Amendment No. 1.
(l) Walgreen Co. Retirement Plan for
Outside Directors.
(m) Walgreen Section 162(m) Deferred
Compensation Plan.
(n) Consulting Agreement between Walgreen Co.
and Charles D. Hunter.
EXHIBIT 3(a)
AMENDMENT AND RESTATEMENT OF ARTICLES OF INCORPORATION
RESTATED ARTICLE R-I
1. The name of the corporation is: Walgreen Co.
2. The corporation was incorporated February 15, 1909
under the name:
C. R. Walgreen and Co.
3. Subsequent corporate names and the dates of their
adoption are:
Name Date Adopted
Walgreen Co. April 13, 1916
RESTATED ARTICLE R-II
The address of its registered office in the State of
Illinois on the date of this Restatement of Articles of
Incorporation is: 200 Wilmot Road, in the City of
Deerfield, County of Lake, State of Illinois, Zip Code
60015, and the name of its Registered Agent at said address
is: Allan M. Resnick.
RESTATED ARTICLE R-III
The duration of the corporation is: Perpetual.
RESTATED ARTICLE R-IV
The purpose or purposes for which the corporation is
organized are:
To manufacture, compound, buy, sell, and generally deal
in drugs, medicines, chemicals and druggists' sundries of
all kinds at wholesale and retail together with all goods,
wares and merchandise.
AMENDED AND RESTATED ARTICLE R-V
1. The aggregate number of shares which the
Corporation is authorized to issue is 808,000,000 divided
into two classes. The designation of each class, the number
of shares of each class and the par value of the shares of
each class, are as follows:
Class Series (if any) Number of
Shares Par Value
Preferred Shares Issuable in Series 8,000,000
$.25
Junior Participating
Preferred, Series A
Preferred 2,462,120 $.25
Common Shares None
800,000,000 $.3125
2. The preferences, qualifications, limitations,
restrictions and the special or relative rights in respect
of the shares of each class are:
SECTION A
The Preferred Shares
1. The Preferred Shares may be issued in one or more
series and with such designation for each such series
sufficient to distinguish the shares thereof from the shares
of all other series and classes, as shall be stated and
expressed in the resolution or resolutions providing for the
issue of each such series adopted by the Board of Directors.
The Board of Directors in any such resolution or resolutions
is hereby expressly authorized to divide the Preferred
Shares into series and to fix and determine the relative
rights and preferences of the shares of any series so
established as to:
(i) The rate per annum at which the holders of
shares shall be entitled to receive dividends.
(ii) The price at and the terms and conditions on
which shares may be redeemed.
(iii) The amount payable upon shares in event
of involuntary liquidation.
(iv) The amount payable upon shares in event of
voluntary liquidation.
(v) The sinking fund provisions, if any, for the
redemption or purchase of shares.
(vi) The terms and conditions on which shares may
be converted, if the shares are issued with the privilege of
conversion.
The Board of Directors may increase the number of
shares designated for any existing series by a resolution
adding to such series authorized and unissued Preferred
Shares not designated for any other series.
2. All Preferred Shares of any one series shall be
identical with each other in all respects, except that
shares of any one series issued at different times as
provided in paragraph 3 of this Section A, may differ as to
the dates from which dividends thereon shall be cumulative.
3. Before any dividends on the Common Shares or on
any other class or classes of stock of the Corporation,
ranking junior to the Preferred Shares with respect to
payment of dividends, shall be paid or declared or set apart
for payment, the holders of Preferred Shares shall be
entitled to receive when and as declared by the Board of
Directors, cumulative cash dividends, out of any funds
legally available for the declaration of dividends and in
the case of each series at the rate per annum, and no more,
for the particular series fixed in the resolution or
resolutions providing for the issue of such series of
Preferred Shares, adopted by the Board of Directors, payable
quarterly on such dates, in each year, as may be fixed in
such resolution or resolutions. With respect to each series
of the Preferred Shares, such dividends shall be cumulative
from the respective dates of issue thereof. No dividends
shall be paid on any series of the Preferred Shares in
respect of any dividend period unless all cumulative
dividends accrued prior to said dividend period with respect
to all Preferred Shares of each other series shall have been
paid or declared and set aside for payment.
4. The holders of Preferred Shares shall be entitled
to vote as a class and otherwise as provided by law.
5. Preferred Shares which have been redeemed or shall
have been purchased, converted or otherwise acquired by the
Corporation may thereafter be reissued under such terms and
conditions, not inconsistent with the provisions of this
Section A, as the Board of Directors may thereafter
determine.
6. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
and before any distribution of the assets of the Corporation
shall be made to or set apart for the holders of the Common
Shares or of any other class of shares of the Corporation
ranking junior to the Preferred Shares with respect to
payment of dividends or upon dissolution, liquidation or
winding up of the Corporation, the holders of the shares of
each series of the Preferred Shares then outstanding shall
be entitled to receive payment of such amount, as shall be
stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issue of
such series; but such holders upon receipt of such payment
shall be entitled to no further payment.
7. In case of any liquidation, dissolution or winding
up of the Corporation, if the amounts payable with respect
to all series of Preferred Shares then outstanding are not
paid in full, the shares of all series of the Preferred
Shares shall share proportionately in accordance with the
respective amounts which would be payable on said shares if
all amounts payable were paid in full.
8. A consolidation or merger of the Corporation with
or into one or more corporations shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of
this Section A.
SECTION B
The Common Shares
1. Subject to the limitations set forth in Section A
of this Restated Article R-V, the holders of Common Shares
shall be entitled to dividends if, when and as the same
shall be declared by the Board of Directors out of funds of
the Corporation legally available therefor.
2. The holders of Common Shares shall be entitled to
vote as provided by law.
SECTION C
The Preferred and Common Shares
No holder of any shares shall have any preemptive right
to subscribe for or to acquire any additional shares of the
corporation of the same or of any other class, whether now
or hereafter authorized (including any shares held by the
corporation in its treasury) or any options or warrants
giving the right to purchase any such shares, or any bonds,
notes, debentures or other obligations convertible into any
such shares, excepting only such right, if any, as the Board
of Directors, in its discretion from time to time shall
determine and provide.
SECTION D
Upon the effective date of this amendment and
restatement, each presently issued and outstanding share of
the Common Stock of this Corporation have a par value of
$.3125 per share of Common Stock.
3. PROVISIONS APPLICABLE TO CERTAIN BUSINESS
COMBINATIONS
3.01 The affirmative vote of the holders of not less
than 80 percent of the outstanding shares of Common Stock of
the Corporation shall be required for the approval or
authorization of any "Business Combination" (as hereinafter
defined) of the Corporation with any "Substantial
Shareholder" (as hereinafter defined); provided, however,
that such 80 percent voting requirement shall not be
applicable if:
(i) Such Business Combination was approved by at
least two-thirds of the "Continuing Directors" (as
hereinafter defined) of the Board of Directors of the
Corporation; or
(ii) The Cash or fair market value (as determined
by at least two-thirds of the Continuing Directors) of the
property, securities or other consideration to be received
per share by holders of the Common Stock of the Corporation
in such Business Combination is not less than the "Highest
Per Share Price" (as hereinafter defined) paid by the
Substantial Shareholder in acquiring any of its holdings of
the Corporation's Common Stock.
3.02 For purposes of this paragraph 3 of Restated
Article R-V:
(i) The term "Business Combination" shall include,
without limitation, (a) any merger or consolidation of the
Corporation, or any entity controlled by or under common
control with the Corporation, with or into any Substantial
Shareholder, or any entity controlled by or under common
control with the Substantial Shareholder, (b) any merger or
consolidation of a Substantial Shareholder, or any entity
controlled by or under common control with the Substantial
Shareholder, with or into the Corporation or any entity
controlled by or under common control with the Corporation,
(c) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition, (in one transaction or a series of
transactions) of all or substantially all of the property
and assets of the Corporation, or any entity controlled by
or under common control with the Corporation, to a
Substantial Shareholder, or any entity controlled by or
under common control with the Substantial Shareholder, (d)
any purchase, lease, exchange, mortgage, pledge, transfer or
other acquisition (in one transaction or a series of
transactions) of all or substantially all of the property
and assets of a Substantial Shareholder or any entity
controlled by or under common control with the Substantial
Shareholder, by the Corporation, or any entity controlled by
or under common control with the Corporation, (e) any
recapitalization of the Corporation that would have the
effect of increasing the proportionate voting power of a
Substantial Shareholder, and (f) any agreement, contract or
other arrangement providing for any of the transactions
described in this definition of Business Combination.
(ii) The Term "Substantial Shareholder" shall mean and
include any individual, corporation, partnership or other
person or entity which, together with its "Affiliates" and
"Associates" (as defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934 as
in effect at the date of the adoption of this Article by the
shareholders of the Corporation (collectively, and as so in
effect, the "Exchange Act")), "Beneficially Owns" (as
defined in Rule 13d-3 of the Exchange Act) in the aggregate
10 percent or more of the outstanding Common Stock of the
Corporation, and any Affiliate or Associate of any such
individual, corporation, partnership or other person or
entity.
(iii) Without limitation, any share of Common Stock
of the Corporation that any Substantial Shareholder has the
right to acquire at any time (notwithstanding that Rule 13d-
3 deems such shares to be beneficially owned only if such
right may be exercised within 60 days) pursuant to any
agreement, or upon exercise of conversion rights, warrants
or options, or otherwise, shall be deemed to be Beneficially
Owned by the Substantial Shareholder and to be outstanding
for purposes of clause (ii) above.
(iv) For the purposes of subparagraph 3.01 (ii) of this
paragraph 3 of Article R-V, the term "other consideration to
be received" shall include, without limitation, Common Stock
or other capital stock of the Corporation retained by its
existing stockholders other than Substantial Shareholders or
other parties to such Business Combination in the event of a
Business Combination in which the Corporation is the
surviving corporation.
(v) The term "Continuing Director" shall mean a
Director who was a member of the Board of Directors of the
Corporation immediately prior to the time that the
Substantial Shareholder involved in a Business Combination
became a Substantial Shareholder.
(vi) A Substantial Shareholder shall be deemed to have
acquired a share of the Common Stock of the Corporation at
the time when such Substantial Shareholder became the
Beneficial Owner thereof. With respect to the shares owned
by Affiliates, Associates or other persons whose ownership
is attributed to a Substantial Shareholder under the
foregoing definition of Substantial Shareholder, if the
price paid by such Substantial Shareholder for such shares
is not determinable by a majority of the Continuing
Directors, the price so paid shall be deemed to be the
higher of (a) the price paid upon the acquisition thereof by
the Affiliate, Associate or other person or (b) the closing
market price per share on the New York Stock Exchange on the
date when the Substantial Shareholder became the Beneficial
Owner thereof.
(vii) The term "Highest Per Share Price" as used in
this paragraph 3 shall mean the highest price that can be
determined to have been paid at any time by the Substantial
Shareholder for any share or shares of Common Stock. In
determining the Highest Per Share Price all purchases by the
Substantial Shareholder shall be taken into account
regardless of whether the shares were purchased before or
after the Substantial Shareholder became a Substantial
Shareholder. The Highest Per Share Price shall include any
brokerage commissions, transfer taxes and soliciting
dealers' fees paid by the Substantial Shareholder with
respect to the shares of common stock of the Corporation
acquired by the Substantial Shareholder. In the case of any
Business Combination with a Substantial Shareholder, the
Continuing Directors shall determine the Highest Per Share
Price.
3.03 The provisions set forth in this paragraph 3 may
not be amended, altered, changed or repealed in any respect
unless such action is approved by the affirmative vote of
the holders of not less than 80 percent of the outstanding
shares of common stock of the Corporation at a meeting of
the shareholders duly called for the consideration of such
amendment, alteration, change or repeal.
RESTATED ARTICLE R-VI
The class and number of shares issued on the date of
adoption of this Amendment and Restatement of the Articles
of Incorporation and the stated capital and paid-in surplus
as of such date were:
Stated Capital
Series Number of Par
with respect
Class (if any) Shares Value
thereto
Preferred Shares Issuable in 0 $.25
$0
Series
Common None 246,141,072 $.3125
$79,958,398
Paid-in Surplus
None
Total Stated Capital and Paid-in Surplus
$79,958,398
RESTATED ARTICLE R-VII
The foregoing Amended and Restated Articles R-I to R-
VI, and Restated Article R-VIII and the Statement of
Resolutions Establishing Series described below, are an
amendment to and restatement of the Articles of
Incorporation of Walgreen Co., effective as of the date of
issuance of the Certificate of Amendment of Articles of
Incorporation by the Secretary of State, and shall from that
time supersede and stand in lieu of the corporation's
Articles of Incorporation. This Amendment and Restatement
is intended to solely effect a two-for-one split of the
shares of Walgreen Co. and restate the preexisting Articles
of Incorporation of Walgreen Co., without otherwise
effecting any substantive change or amendment to the
corporation's Articles of Incorporation.
RESTATED ARTICLE R-VIII
The Directors of the Corporation shall not be liable to
the Corporation or to the shareholders of the Corporation
for monetary damages for breach of fiduciary duties as a
Director, provided that this provision shall not eliminate
or limit the liability of the Director (i) for any breach of
the Director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing
violation of the law, (iii) under Section 8.65 of the
Illinois Business Corporation Act or (iv) for any
transaction from which the Director derived an improper
personal benefit.
AMENDED AND RESTATED
STATEMENT OF RESOLUTIONS ESTABLISHING SERIES
Pursuant to the provisions of "The Business Corporation Act
of 1983," the undersigned corporation hereby submits the
following Statement of Resolutions Establishing Series.
1. The name of the corporation is Walgreen Co. (the
"Corporation").
2. The Board of Directors on July 9, 1986 duly adopted the
following resolution establishing and designating one
or more series and fixing and determining the relative
rights and preferences thereof:
RESOLVED FURTHER, that pursuant to the authority vested
in the Board of Directors of this Corporation in accordance
with the provisions of its Restated Articles of
Incorporation, as amended, a series of Preferred Shares,
$.25 par value per share, of the Corporation (the "Preferred
Shares") be, and it hereby is, created, and that the
designation and amount thereof, and the voting powers,
preferences and relative, participating, optional and other
special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof, are as
follows:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Junior Participating
Preferred, Series A" (the "Series A Preferred") and the
number of shares constituting such series shall be
2,462,120.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of
the holders of any series of Preferred Shares ranking prior
and superior to the shares of Series A Preferred with
respect to dividends, the holders of shares of Series A
Preferred, in preference to the holders of Common Shares,
$.3125 par value per share, of the Corporation (the "Common
Shares") and of any other shares ranking junior as to
dividends to the Series A Preferred, shall be entitled to
receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly
dividends payable in cash on the twelfth day of September,
December, March and June in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share
of Series A Preferred, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $0.25 or (b)
subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in Common Shares
or a subdivision of the outstanding Common Shares (by
reclassification or otherwise), declared on the Common
Shares since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series A Preferred. In the event
the Corporation shall at any time declare or pay any
dividend on Common Shares payable in Common Shares, or
effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise
than by payment of a dividend in Common Shares) into a
greater or lesser number of Common Shares, then in each such
case the amount to which holders of shares of Series A
Preferred were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of
which is the number of Common Shares outstanding immediately
after such event and the denominator of which is the number
of Common Shares that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred as provided in
paragraph (A) of this Section immediately after it declares
a dividend or distribution on the Common Shares (other than
a dividend payable in Common Shares); provided that, in the
event no dividend or distribution shall have been declared
on the Common Shares during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $0.25 per share on the
Series A Preferred shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Preferred from
the Quarterly Dividend Payment Date next preceding the date
of issue of such shares of Series A Preferred, unless the
date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue and be
cumulative from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is
a date after the record date for the determination of
holders of shares of Series A Preferred entitled to receive
a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A
Preferred in an amount less than the total amount of such
dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of
holders of shares of Series A Preferred entitled to receive
payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Series A Preferred shall have the following voting rights:
(A) Each share of Series A Preferred shall
entitle the holder thereof to one vote on all matters
submitted to a vote of the shareholders of the Corporation.
(B) Except as otherwise provided herein or by
law, the holders of shares of Series A Preferred and the
holders of Common Shares shall vote together as one class on
all matters submitted to a vote of shareholders of the
Corporation.
(C) Except as set forth herein, holders of Series
A Preferred shall have no special voting rights and their
consent shall not be required (except to the extent they are
entitled to vote with holders of Common Shares as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Preferred
as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Preferred
outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends on, or make any
other distributions on, any shares ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred;
(ii) declare or pay dividends on or make any
other distributions on any shares ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred, except dividends
paid ratably on the Series A Preferred and all such parity
stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled.
(iii) redeem or purchase or otherwise
acquire for consideration shares ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred, provided that the Corporation may
at any time redeem, purchase or otherwise acquire any such
junior shares in exchange for any shares of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred, or any
shares ranking on a parity with the Series A Preferred,
except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as to the
Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any
subsidiary of the Corporation to purchase or otherwise
acquire for consideration any shares of the Corporation
unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
Preferred Shares and may be reissued as part of a new series
of Preferred Shares to be created by resolution or
resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the
holders of shares ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred unless, prior thereto, the holders of shares of
Series A Preferred shall have received $100 per share, plus
an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date
of such payment, provided that the holders of shares of
Series A Preferred shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of Common
Shares, or (2) to the holders of shares ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred, except
distributions made ratably on the Series A Preferred and all
other such parity stock in proportion to the total amounts
to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up. In the event
the Corporation shall at any time declare or pay any
dividend on Common Shares payable in Common Shares, or
effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise
than by payment of a dividend in Common Shares) into a
greater or lesser number of Common Shares, then in each such
case the aggregate amount to which holders of shares of
Series A Preferred were entitled immediately prior to such
event under the proviso in clause (1) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of Common
Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the Common Shares
are exchanged for or changed into other shares or
securities, cash and/or any other property, then in any such
case the shares of Series A Preferred then outstanding shall
at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate
amount of shares, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for
which each Common Share is changed or exchanged. In the
event the Corporation shall at any time declare or pay any
dividend on Common Shares payable in Common Shares, or
effect a subdivision or combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise)
into a greater or lesser number of Common Shares, then in
each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of
Series A Preferred shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
Common Shares outstanding immediately after such event and
the denominator of which is the number of Common Shares that
were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A
Preferred shall not be redeemable.
Section 9. Rank. The Series A Preferred shall rank
junior to all other series of the Preferred Shares, as to
the payment of dividends and the distribution of assets,
unless the terms of such other series specifies to the
contrary.
Section 10. Amendment. The Restated Certificate of
Incorporation, as amended, of the Corporation shall not be
amended in any manner which would materially alter or change
the powers, preferences or special rights of the Series A
Preferred so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the
outstanding shares of Series A Preferred, voting together as
a single class.
EXHIBIT 13
<TABLE>
ELEVEN-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
Walgreen Co. and Subsidiaries
(Dollars in Thousands, except per share data)
<CAPTION>
FISCAL YEAR 1995 1994 1993 1992
<S> <C> <C> <C> <C>
NET SALES $10,395,096 $9,234,978 $8,294,840 $7,474,961
COSTS AND DEDUCTIONS
Cost of sales 7,482,344 6,614,445 5,959,002 5,377,738
Selling, occupancy and
administration 2,392,731 2,164,889 1,929,630 1,738,770
Other (income) expense (1) (3,720) (2,777) 6,532 5,448
Total Costs and Deductions 9,871,355 8,776,557 7,895,164 7,121,956
EARNINGS
Earnings before income tax
provision and cumulative
effect of accounting changes 523,741 458,421 399,676 353,005
Income tax provision 202,950 176,492 154,387 132,377
Earnings before cumulative
effect of accounting
changes 320,791 281,929 245,289 220,628
Cumulative effect of accounting
changes (2) - - (23,623) -
Net Earnings $ 320,791 $ 281,929 $ 221,666 $ 220,628
================================================================================
PER COMMON SHARE (3)
Earnings before cumulative
effect of accounting
changes $ 1.30 $ 1.14 $ .99 $ .89
Net Earnings (2) 1.30 1.14 .90 .89
Dividends Declared .39 .34 .30 .26
Book Value 7.28 6.39 5.60 5.01
================================================================================
NON-CURRENT LIABILITIES
Long-term debt $ 2,395 $ 1,790 $ 6,210 $ 18,749
Deferred income taxes 142,278 137,741 144,186 171,820
Other non-current liabilities 237,586 213,796 176,218 103,820
================================================================================
ASSETS AND EQUITY
Total Assets $3,252,607 $2,872,841 $2,506,034 $2,346,942
================================================================================
Shareholders' Equity $1,792,586 $1,573,640 $1,378,751 $1,233,310
================================================================================
Return on Average Shareholders'
Equity (2) 19.1% 19.1% 17.0% 19.1%
================================================================================
________________________________________________________________________________
<FN>
(1) Fiscal 1993 includes the $6,821,000 costs from the early redemption of the
company's $100 million 9 1/2% sinking fund debentures, due 2016. Fiscal
1991 includes a $4,118,000 loss from the closing of the company's Memphis,
Tennessee, distribution center. Fiscal 1989 includes a $6,114,000 loss on
sale of manufacturing operations.
(2) In 1993, the company adopted two Statements of Financial Accounting
Standards, No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" and No. 109 "Accounting for Income Taxes."
(3) Per share data have been adjusted for two-for-one stock splits in 1995 and
1991.
</TABLE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
<C> <C> <C> <C> <C> <C> <C>
$6,733,044 $6,047,494 $5,380,133 $4,883,520 $4,281,606 $3,660,553 $3,161,935
4,829,186 4,356,392 3,848,546 3,468,973 3,000,988 2,550,072 2,192,367
1,582,725 1,406,922 1,278,116 1,190,295 1,069,859 914,003 791,697
9,189 3,257 9,632 15,282 16,576 8,852 4,171
6,421,100 5,766,571 5,136,294 4,674,550 4,087,423 3,472,927 2,988,235
311,944 280,923 243,839 208,970 194,183 187,626 173,700
116,979 106,346 89,597 79,908 90,646 84,489 79,531
194,965 174,577 154,242 129,062 103,537 103,137 94,169
- - - - - - -
$ 194,965 $ 174,577 $ 154,242 $ 129,062 $ 103,537 $ 103,137 $ 94,169
=============================================================================
$ .79 $ .71 $ .63 $ .52 $ .42 $ .42 $ .38
.79 .71 .63 .52 .42 .42 .38
.23 .20 .17 .15 .14 .13 .11
4.39 3.85 3.35 2.90 2.53 2.25 1.96
=============================================================================
$ 122,960 $ 146,740 $ 150,121 $ 172,111 $ 141,433 $ 136,158 $ 44,336
155,314 138,926 118,320 105,548 97,399 84,604 66,300
85,064 77,075 68,624 55,314 50,840 45,592 44,130
=============================================================================
$2,074,359 $1,896,146 $1,666,322 $1,501,482 $1,354,217 $1,189,965 $ 955,691
=============================================================================
$1,081,157 $ 947,249 $ 823,401 $ 712,644 $ 622,328 $ 553,611 $ 480,974
=============================================================================
19.2% 19.7% 20.1% 19.3% 17.6% 19.9% 21.0%
=============================================================================
_____________________________________________________________________________
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fiscal 1995 was the twenty-first consecutive year of record sales and
earnings. Net earnings were $321 million or $1.30 per share, an increase of
13.8% from last year's earnings of $282 million or $1.14 per share. Earnings
increases resulted from higher sales and improved expense ratios.
Sales rose 12.6% to $10.4 billion in fiscal 1995 compared to increases of
11.3% in 1994 and 11.0% in 1993. Drugstore sales increases resulted from sales
gains in existing stores and added sales from new stores, each of which include
an indeterminate amount of market-driven price changes. Sales in comparable
stores (those open at least one year) were up 7.2% in 1995, 5.5% in 1994 and
6.3% in 1993. New stores accounted for 7.6% of the sales gains in 1995, 7.4% in
1994 and 6.2% in 1993. The company operated 2,085 drugstores as of August 31,
1995, compared to 1,968 a year earlier.
In spite of continuing low rates of inflation on pharmaceuticals the last
three years, pharmacy sales increased 19.8% in 1995, 18.9% in 1994 and 15.7% in
1993, with comparable stores up 13.8%, 12.1%, and 11.3% in 1995, 1994 and 1993,
respectively. Prescription sales were 43.4% of total sales for fiscal 1995
compared to 40.8% in 1994 and 38.2% in 1993. Pharmacy sales trends are expected
to continue primarily because of expansion into new markets, increased
penetration in existing markets and demographic changes such as the aging
population.
Gross margins as a percent of sales decreased to 28.0% of sales from 28.4%
last year and 28.2% in fiscal 1993. Prescription margins continue to decrease
as third party sales become a larger portion of pharmacy sales. However, the
rate of decrease is slowing as a result of emphasizing minimum profitability
standards to third party payers.
The company uses the last-in, first-out (LIFO) method of inventory
valuation. The effective LIFO inflation rates were 1.29% in 1995, .3% in 1994
and 2.1% in 1993, which resulted in charges to cost of sales of $21.4 million in
1995, $5.1 million in 1994 and $28.1 million in 1993. Inflation on prescription
inventory was 2.8% in both fiscal 1995 and 1994, and 4.4% in 1993. Excluding
prescriptions, the remaining inventory experienced slight deflation during
fiscal 1995 and 1994.
Selling, occupancy and administration expenses were 23.0% of sales in fiscal
1995, 23.4% of sales in fiscal 1994 and 23.3% of sales in fiscal 1993. The
fiscal 1995 decrease, as a percent to sales, was caused by store salaries,
insurance costs and advertising. The fiscal 1994 increase was caused by higher
store salaries, insurance costs and costs associated with closing retail
locations.
Interest income decreases in both 1995 and 1994 resulted principally from
lower investment levels. Average net investment levels were approximately $59
million in 1995, $105 million in 1994, and $138 million in 1993. The lower
investment level in fiscal 1995 was substantially offset by higher interest
rates. In fiscal 1993 the company retired $100 million 9 1/2% sinking fund
debentures at a cost of $6.8 million ($.02 per share). This reduced interest
expense by $6.7 million in 1993 and $9.5 million per year thereafter.
The fiscal 1995 effective tax rate was 38.75% compared to 38.5% in 1994 and
38.6% in 1993. The increase in rate in fiscal 1995 compared to 1994 was due to
higher state income taxes and estimated interest on tax audits.
FINANCIAL CONDITION
Cash and cash equivalents and marketable securities were $22 million at
August 31, 1995, compared to $108 million at August 31, 1994. 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 decreased $11 million compared to
the same period a year ago. This decrease resulted primarily from increased
inventories to support store growth, offset by higher 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 $299 million for fiscal 1995
versus $284 million last year. Additions to property and equipment were $310
million compared to $290 million last year. Additions for this fiscal year
included expenditures for the new Woodland, California, distribution center.
During the year, a record 206 new or relocated drugstores were opened. This
compares to 196 new or relocated drugstores opened in the same period last year.
New stores are purchased or leased. Openings for this fiscal year included 17
purchased locations versus 31 for the same period last year. Planned capital
expenditures for fiscal 1996 are expected to exceed $300 million.
The company expects to open 215 new stores in fiscal 1996 and continue to
open 200 or more stores annually for the next five years. Plans during fiscal
1996 include opening 10 to 15 stores each in the new Dallas/Fort Worth and Las
Vegas markets, as well as four to five in Portland, Oregon. With the movement
to freestanding store locations (from strip centers and malls), the decision has
been made to purchase, rather than lease, more store locations than in the past.
This will eventually result in lower store occupancy costs and provide the
foundation to capitalize on the strength of the real estate selection process.
Borrowings may be necessary to finance these future obligations. By the end of
fiscal 1996 more than 400 stores are expected to offer one-hour photofinishing.
Store implementation of Intercom Plus, an advanced pharmacy computer and
workflow system, is expected to be completed in fiscal 1997. Healthcare Plus,
the company's managed care subsidiary, has formed its own PBM (pharmacy benefits
manager) network and will begin serving new plans in January.
Net cash used for financing activities was $102 million for fiscal 1995
compared to $86 million in fiscal 1994. At August 31, 1995, the company had
$123 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 an additional
$93 million against corporate-owned life insurance policies.
Earlier this fiscal year, the company received an unfavorable Tax Court
ruling concerning the depreciable lives of certain assets. The company
appealed, and on October 17, 1995, the United States Court of Appeals rendered
an opinion which reversed the ruling. The case, which involves approximately
$50 million of tax deductions taken in prior years, was remanded back to the Tax
Court for further findings on the facts. As of August 31, 1995, the company has
adequately provided for all the tax and related interest.
Adoption of Financial Accounting Board Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets" is required by fiscal 1997. This pronouncement
requires long-lived assets to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. When adopted, it is not expected to significantly impact the
company's consolidated financial position or results of operations.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Walgreen Co. and Subsidiaries
For the Years Ended August 31, 1995, 1994 and 1993
(Dollars in Thousands, except per share data)
________________________________________________________________________________
EARNINGS 1995 1994 1993
NET SALES $10,395,096 $9,234,978 $8,294,840
COSTS AND DEDUCTIONS
Cost of sales 7,482,344 6,614,445 5,959,002
Selling, occupancy and administration 2,392,731 2,164,889 1,929,630
9,875,075 8,779,334 7,888,632
OTHER (INCOME) EXPENSE
Interest income (4,910) (5,363) (6,743)
Interest expense 1,190 2,586 6,454
Debt redemption costs - - 6,821
(3,720) (2,777) 6,532
EARNINGS
Earnings before income tax provision
and cumulative effect of accounting
changes 523,741 458,421 399,676
Income tax provision 202,950 176,492 154,387
Earnings before cumulative effect of
accounting changes 320,791 281,929 245,289
Cumulative effect of accounting changes - - (23,623)
Net earnings $ 320,791 $ 281,929 $ 221,666
===============================================================================
_______________________________________________________________________________
NET EARNINGS PER
COMMON SHARE
Earnings before cumulative effect of
accounting changes $ 1.30 $ 1.14 $ .99
Cumulative effect of accounting changes - - (.09)
Net earnings $ 1.30 $ 1.14 $ .90
===============================================================================
_______________________________________________________________________________
RETAINED EARNINGS 1995 1994 1993
Balance, beginning of year $1,496,721 $1,301,832 $1,156,391
Net earnings 320,791 281,929 221,666
Cash dividends declared:
$.39 per share in 1995,
$.34 in 1994 and $.30 in 1993 (95,995) (83,688) (73,843)
Employee stock purchase and
option plans (5,850) (3,352) (2,382)
Balance, end of year $1,715,667 $1,496,721 $1,301,832
================================================================================
________________________________________________________________________________
The accompanying Statement of Major Accounting Policies and the
Notes to Consolidated Financial Statements are integral parts of
these statements.
CONSOLIDATED BALANCE SHEETS
Walgreen Co. and Subsidiaries
At August 31, 1995 and 1994
(Dollars in Thousands)
________________________________________________________________________________
ASSETS 1995 1994
CURRENT ASSETS
Cash and cash equivalents $ 22,245 $ 77,915
Marketable securities at cost, which approximates market - 30,510
Accounts receivable, net of allowances for doubtful
accounts of $24,633 in 1995 and $21,601 in 1994 246,086 193,930
Inventories 1,453,881 1,263,400
Other current assets 90,705 71,148
Total Current Assets 1,812,917 1,636,903
NON-CURRENT ASSETS
Property and equipment, at cost, less accumulated
depreciation and amortization 1,248,962 1,085,487
Other non-current assets 190,728 150,451
TOTAL ASSETS $3,252,607 $2,872,841
================================================================================
________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY____________________________________________
CURRENT LIABILITIES
Trade accounts payable $ 606,263 $ 532,816
Accrued expenses and other liabilities 448,219 390,683
Income taxes 23,280 22,375
Total Current Liabilities 1,077,762 945,874
NON-CURRENT LIABILITIES
Deferred income taxes 142,278 137,741
Other non-current liabilities 239,981 215,586
Total Non-Current Liabilities 382,259 353,327
SHAREHOLDERS' EQUITY
Preferred stock, $.25 par value; authorized
8,000,000 shares; none issued - -
Common stock, $.3125 par value; authorized 800,000,000
shares; issued and outstanding 246,141,072 in 1995
and 1994, at stated value 76,919 76,919
Retained earnings 1,715,667 1,496,721
Total Shareholders' Equity 1,792,586 1,573,640
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,252,607 $2,872,841
================================================================================
________________________________________________________________________________
The accompanying Statement of Major Accounting Policies and the Notes to
Consolidated Financial Statements are integral parts of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Walgreen Co. and Subsidiaries
For the Years Ended August 31, 1995, 1994 and 1993
(Dollars in Thousands)
_______________________________________________________________________________
FISCAL YEAR 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 320,791 $ 281,929 $ 221,666
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization 131,537 118,118 104,660
Cumulative effect of accounting
changes - - 23,623
Deferred income taxes (7,213) 5,653 (12,645)
Other 3,388 15,983 3,631
Changes in operating assets and
liabilities -
Inventories (190,481) (169,365) (99,867)
Trade accounts payable 73,447 105,631 15,502
Accrued expenses and other
liabilities 41,669 35,051 54,230
Accounts receivable, net (36,265) (50,692) (7,427)
Insurance reserves 14,982 16,797 10,056
Other current assets (7,807) (3,910) (7,814)
Income taxes 905 693 184
Net cash provided by operating activities 344,953 355,888 305,799
CASH (USED FOR) PROVIDED BY
INVESTING ACTIVITIES
Additions to property and equipment (310,254) (289,976) (184,674)
Net investment in corporate-owned life
insurance (34,140) (6,445) (35,981)
Net sales (purchases) of marketable
securities 30,510 (815) 51,349
Proceeds from disposition of property
and equipment 15,242 13,704 8,973
Net cash used for investing activities (298,642) (283,532) (160,333)
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
Cash dividends paid (92,918) (81,226) (71,382)
Payments of long-term obligations (7,129) (5,760) (112,053)
Cost of employee stock purchase and
option plans (5,850) (3,352) (2,382)
Proceeds from (purchases for) employee
stock plans 3,916 4,300 (12,592)
Net cash used for financing activities (101,981) (86,038) (198,409)
CHANGES IN CASH AND CASH EQUIVALENTS
Net decrease in cash and
cash equivalents (55,670) (13,682) (52,943)
Cash and cash equivalents at
beginning of year 77,915 91,597 144,540
Cash and cash equivalents at
end of year $ 22,245 $ 77,915 $ 91,597
===============================================================================
_______________________________________________________________________________
The accompanying Statement of Major Accounting Policies and the Notes to
Consolidated Financial Statements are integral parts of these statements.
STATEMENT OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated statements include the accounts of the company and its
subsidiaries. All significant intercompany transactions have been eliminated.
Certain amounts in the 1994 and 1993 Consolidated Financial Statements have been
reclassified to be consistent with the 1995 presentation.
ACCOUNTING CHANGES
In fiscal 1993 the company adopted two Statements of Financial Accounting
Standards, SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes."
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all highly liquid investments
with an original maturity of three months or less. All other temporary
investments are classified as marketable securities.
The company's cash management policy provides for the bank disbursement
accounts to be reimbursed on a daily basis. Checks issued but not presented to
the banks for payment of $130,000,000 and $88,000,000 at August 31, 1995 and
1994, respectively, are included in cash and cash equivalents as reductions of
other cash balances.
FINANCIAL INSTRUMENTS
The company had approximately $18,000,000 and $20,000,000 of outstanding letters
of credit at August 31, 1995 and 1994, respectively, which guaranteed foreign
trade purchases. Additional outstanding letters of credit of $57,000,000 at
August 31, 1995 and $49,000,000 at August 31, 1994 were related to insurance
activities. The company also has purchase commitments of approximately
$17,000,000 related to the purchase of store locations. There were no
investments in derivative financial instruments during fiscal 1995 and 1994.
INVENTORIES
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market
basis. At August 31, 1995 and 1994, inventories would have been greater by
$415,015,000 and $393,568,000, respectively, if they had been valued on a lower
of first-in, first-out (FIFO) cost or market basis. Cost of sales is primarily
computed on an estimated basis and adjusted based on periodic inventories.
PROPERTY AND EQUIPMENT
Depreciation is provided on a straight-line basis over the estimated useful
lives of owned assets. Leasehold improvements and leased properties under
capital leases are amortized over the estimated physical life of the property or
over the term of the lease, whichever is shorter. Major repairs which extend
the useful life of an asset are capitalized in the property and equipment
accounts. Routine maintenance and repairs are charged against earnings. The
composite method of depreciation is used for equipment; therefore, gains and
losses on retirement or other disposition of such assets are included in
earnings only when an operating location is closed or completely remodeled.
Fully depreciated property and equipment are removed from the cost and related
accumulated depreciation and amortization accounts.
Property and equipment consists of (In Thousands):_____________________________
1995 1994
Land and land improvements $ 88,097 $ 78,118
Buildings and building improvements 555,645 498,673
Equipment 1,047,548 909,187
Capitalized systems development costs 117,545 87,885
Capital lease properties 21,930 23,378
1,830,765 1,597,241
Less: accumulated depreciation and amortization 581,803 511,754
$1,248,962 $1,085,487
===============================================================================
The company capitalizes significant systems development costs. These costs are
amortized over a five-year period as phases of these systems are implemented.
Unamortized costs as of August 31, 1995 and 1994, were $84,910,000 and
$66,303,000, respectively. Amortization of these costs were $11,053,000,
$8,901,000 and $5,712,000 in 1995, 1994 and 1993, respectively.
INCOME TAXES
The company provides for federal and state income taxes on items included in the
Consolidated Statements of Earnings regardless of the period when such taxes are
payable. Deferred taxes are recognized for temporary differences between
financial and income tax reporting based on enacted tax laws and rates.
RETIREMENT BENEFITS
The principal retirement plan for employees is the Walgreen Profit-Sharing
Retirement Trust, to which both the company and the employees contribute. The
company's contribution, which is determined annually at the discretion of the
Board of Directors, has historically related to pretax income. The
profit-sharing provision was $44,315,000 in 1995, $37,683,000 in 1994 and
$35,119,000 in 1993.
The company provides certain health and life insurance benefits for retired
employees who meet eligibility requirements, including age and years of service.
The costs of these benefits are accrued over the period earned. The company's
postretirement benefit plans currently are not funded.
The company has deferred compensation plans which permit directors and
certain management employees the right to defer a portion of their compensation.
The participants earn interest on deferred amounts depending on various factors
defined in the plans. Although not linked to the plans, the company has
purchased life insurance on the participants and other key employees to fund the
distributions under these and other benefit plans.
NET EARNINGS PER COMMON SHARE
Primary net earnings per share were computed using weighted average number of
shares and common share equivalents outstanding of 247,527,030 in 1995,
247,292,458 in 1994 and 247,539,548 in 1993. Fully diluted net earnings per
share are the same as primary net earnings per share.
PRE-OPENING EXPENSES
Non-capital expenditures incurred prior to the opening of a new or remodeled
store are charged against earnings when they are incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred, and were $85,907,000 in 1995,
$93,467,000 in 1994 and $88,102,000 in 1993.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTEREST EXPENSE
The company capitalized $751,000, $482,000 and $394,000 of interest expense as
part of significant construction projects during fiscal 1995, 1994 and 1993,
respectively. Interest paid, net of amounts capitalized, was $2,950,000 in
1995, $1,954,000 in 1994 and $9,950,000 in 1993. In fiscal 1993 the company
retired $100 million 9 1/2% sinking fund debentures, due 2016.
LEASES
The company generally operates in leased premises. Original non-cancelable
lease terms typically are 20 years and may contain escalation clauses, along
with options that permit renewals for additional periods. The total amount of
the minimum rent is expensed on a straight-line basis over the term of the
lease. In addition to minimum fixed rentals, most leases provide for contingent
rentals based upon sales.
Minimum rental commitments at August 31, 1995, under all leases having an
initial or remaining non-cancelable term of more than one year are shown below
(In Thousands):_________________________________________________________________
YEAR____________________________________________________________________________
1996 $ 278,529
1997 290,201
1998 281,830
1999 274,145
2000 264,728
Later 2,628,922
Total minimum lease payments $4,018,355
================================================================================
The above minimum lease payments include minimum rental commitments related to
capital leases amounting to $15,799,000 at August 31, 1995. The present value
of net minimum capital lease payments, due after 1996, are reflected in the
accompanying Consolidated Balance Sheets as part of other non-current
liabilities. Total minimum lease payments have not been reduced by minimum
sublease rentals of approximately $13,020,000 on leases due in the future under
non-cancelable subleases.
Rental expense was as follows (In Thousands):
1995 1994 1993
Minimum rentals $279,217 $242,637 $214,537
Contingent rentals 34,707 34,107 35,052
Less: Sublease rental income (2,845) (2,707) (3,246)
$311,079 $274,037 $246,343
================================================================================
INCOME TAXES
The provision for income taxes consists of the following (In Thousands):
1995 1994 1993
Current provision -
Federal $177,023 $145,381 $133,562
State 33,140 25,458 33,470
210,163 170,839 167,032
Deferred provision -
Federal (6,025) 3,881 (3,903)
State (1,188) 1,772 (8,742)
(7,213) 5,653 (12,645)
$202,950 $176,492 $154,387
================================================================================
The components of the deferred provision were (In Thousands):
1995 1994 1993
Accelerated depreciation $ 10,191 $ 20,756 $ 17,192
Employee benefit plans (9,154) (6,956) (6,518)
Insurance (5,451) (2,763) (14,061)
Other (2,799) (5,384) (9,258)
$ (7,213) $ 5,653 $(12,645)
================================================================================
The deferred tax assets and liabilities included in the Consolidated Balance
Sheet as of August 31, 1995, consist of the following (In Thousands):
ASSETS LIABILITIES TOTAL
Current -
Insurance $ 13,641 $ - $ 13,641
Employee benefit plans 31,723 (11,115) 20,608
Allowances for doubtful accounts 9,987 - 9,987
Inventory 11,060 (28,131) (17,071)
Other 16,434 (3,055) 13,379
82,845 (42,301) 40,544
Non-current -
Accelerated depreciation - (240,772) (240,772)
Insurance 27,695 - 27,695
Employee benefit plans 40,826 - 40,826
Other 30,184 (211) 29,973
98,705 (240,983) (142,278)
$181,550 $(283,284) $(101,734)
================================================================================
Income taxes paid were $209,258,000, $170,146,000 and $166,848,000 during the
fiscal years ended August 31, 1995, 1994 and 1993, respectively. The difference
between the statutory income tax rate and the effective tax rate is principally
due to state income tax provisions.
SHORT-TERM BORROWINGS
At August 31, 1995, the company had approximately $123,000,000 of available bank
lines of credit. The credit lines are renewable annually at various dates and
provide for loans of varying maturities at the prime rate. There are no
compensating balance arrangements.
The company obtained funds through the placement of commercial paper, as
follows (Dollars in Thousands):
1995 1994 1993
Average outstanding during the year $ 5,996 $ 2,011 $ -
Largest month-end balance 35,000 12,977 -
(Nov) (Nov) -
Weighted average interest rate 5.5% 3.3% -
================================================================================
CONTINGENCIES
The company is involved in various legal proceedings incidental to the normal
course of business. This includes a patent infringement suit against the
company and its co-defendant supplier. On October 20, 1994, a judgment of $11.3
million plus interest was entered on this suit. 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 patent infringement suit and other legal proceedings
will not have a material adverse effect on the company's consolidated financial
position or results of operations.
CAPITAL STOCK
All share data have been adjusted to reflect a two-for-one stock split
distributed to shareholders August 8, 1995. In addition the Board of Directors
approved increases in the authorized common stock, from 400 million shares to
800 million shares, and in the authorized preferred stock, from 4 million shares
to 8 million shares.
The company's common stock is subject to a Rights Agreement under which
each share has attached to it a Right to purchase one-four hundredth of a share
of a new series of Preferred Stock, at a price of $30.00 per Right, in the event
a person or group acquires or attempts to acquire 20% of the then outstanding
shares of the company. In the event that a person or group acquires 20% or more
of the outstanding common stock of the company (other than in certain instances
as defined in the Rights Agreement), each Right, except those of an Acquiring
Person, would entitle the holder to purchase a number of shares of the company's
common stock which number is determined pursuant to a formula contained in the
Rights Agreement. The Rights, which are non-voting, will expire on August 21,
1996, but may be redeemed by the company at a price of $.0125 per Right at any
time prior to a public announcement that 20% or more of the company's common
stock has been acquired.
As of August 31, 1995, 27,168,328 shares of common stock were reserved for
future stock issuances under the company's employee stock purchase, option and
award plans. Preferred stock of 2,462,120 shares have been reserved for
issuance upon the exercise of Preferred Share Purchase Rights.
STOCK OPTION PLANS
The Walgreen Co. Executive Stock Option Plan provides for the granting to key
employees of options to purchase company common stock over a 10-year period, at
a price not less than the fair market value on the date of grant. Options may
be issued under the Plan until October 13, 2002, for an aggregate of 9,600,000
shares of common stock of the company. The number of shares available for
future grant was 1,913,090 and 3,952,750 at August 31, 1995 and 1994,
respectively. Options granted prior to July 13, 1988, must be exercised in
sequential order. After this date, options may be exercised in any order
provided they are not restricted by any holding period.
The Walgreen Co. Stock Purchase/Option Plan (Share Walgreens) provides for
the granting of options to eligible employees upon the purchase of company
shares subject to certain restrictions. Under the terms of the plan, the option
price cannot be less than 85% of the fair market value at the date of the grant.
Compensation expense related to the plan was $314,000 and $986,000 in 1995 and
1994, respectively. Options may be issued under this plan until September 30,
2002, for an aggregate of 10,000,000 shares of common stock of the company. The
number of shares available for future grant was 7,723,712 and 7,756,126 at
August 31, 1995 and 1994, respectively. The options granted during 1995 and
1994 have a two-year holding period.
Stock option transactions in fiscal 1993, 1994 and 1995 are summarized as
follows:
Per Share
Shares Option Price Exercisable
Outstanding August 31, 1992 2,965,552 $ 2.703-$19.000 2,165,806
Granted 2,816,696 19.188- 20.188
Exercised (231,976) 2.703- 13.844
Cancelled (50,028) 4.875- 19.250
Outstanding August 31, 1993 5,500,244 $ 4.203-$20.188 1,930,772
Granted 449,520 18.688- 20.875
Exercised (223,696) 4.203- 19.250
Cancelled and expired (70,538) 7.219- 19.750
Outstanding August 31, 1994 5,655,530 $ 6.172-$20.875 2,018,828
Granted 2,114,590 18.813- 23.750
Exercised (231,794) 6.172- 19.250
Cancelled and expired (60,516) 11.406- 19.750
Outstanding August 31, 1995 7,477,810 $ 6.563-$23.750 4,686,171
==============================================================================
POSTRETIREMENT BENEFITS
The components of postretirement benefit cost for fiscal 1995, 1994 and 1993
were as follows (In Thousands):
1995 1994 1993
Service costs - benefits earned during the year $3,781 $2,859 $2,413
Interest cost on accumulated postretirement
benefit obligation 5,576 4,638 4,048
Amortization of unrecognized actuarial amount 229 271 -
Total postretirement benefit cost $9,586 $7,768 $6,461
====== ====== ======
The company's unfunded accumulated postretirement benefit liability at August
31, included in the Consolidated Balance Sheets were as follows (In Thousands):
1995 1994
Retirees $20,210 $18,228
Fully eligible active plan participants 9,834 11,244
Other active plan participants 45,747 41,390
Accumulated postretirement benefit obligation 75,791 70,862
Unrecognized actuarial amount (1,820) (4,469)
Accrued postretirement benefit liability $73,971 $66,393
======= =======
The accumulated postretirement benefit obligation was determined assuming the
discount rate was 7.75% and the healthcare cost trend rate was 7.0% for 1995;
with a gradual decline over a 14-year period to 4.5%. These trend rates reflect
the company's prior experience and management's expectation that future rates
will decline. The effect of a 1% increase each year in the projected healthcare
cost trend rate would increase the accumulated postretirement benefit obligation
at August 31, 1995 by $13,731,000 and the service and interest cost components
of the fiscal 1995 net periodic postretirement benefit cost by $1,991,000. The
unrecognized actuarial amount is being amortized over the average remaining
service period of active plan participants.
SUPPLEMENTARY FINANCIAL INFORMATION
Included in the Consolidated Balance Sheets captions are the following assets
and liabilities (In Thousands):
1995 1994
Other non-current assets -
Cash surrender value of life insurance $166,719 $122,172
Other 24,009 28,279
$190,728 $150,451
==============================================================================
Accrued expenses and other liabilities -
Accrued salaries $139,438 $122,213
Taxes other than income taxes 63,169 59,071
Profit sharing 60,094 49,904
Other 185,518 159,495
$448,219 $390,683
==============================================================================
Other non-current liabilities -
Insurance $ 73,733 $ 63,628
Postretirement benefit obligation 71,370 63,603
Accrued rent 50,482 41,187
Deferred compensation 23,667 24,223
Deferred income 10,401 12,020
Obligations under capital leases 7,933 9,135
Long-term debt, net of current maturities 2,395 1,790
$239,981 $215,586
==============================================================================
Long-term debt includes notes and other real estate obligations with interest
rates at 6.25% and prime. Annual maturities due on long-term debt are
$671,000, $394,000, $422,000, $445,000 and $44,000 for fiscal 1996 through 2000,
respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Walgreen Co.:
We have audited the accompanying consolidated balance sheets of Walgreen
Co. (an Illinois corporation) and Subsidiaries as of August 31, 1995 and
1994, and the related consolidated statements of earnings, retained
earnings and cash flows for each of the three years in the period ended
August 31, 1995. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Walgreen Co.
and Subsidiaries as of August 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1995 in conformity with generally accepted accounting
principles.
As indicated in the Statement of Major Accounting Policies, under
"Accounting Changes", effective September 1, 1992, the company changed its
method of accounting for postretirement benefits other than pensions and
income taxes.
Arthur Andersen LLP
Chicago, Illinois,
September 29, 1995
MANAGEMENT'S REPORT
The primary responsibility for the integrity and objectivity of the consolidated
financial statements and related financial data rests with the management of
Walgreen Co. The financial statements were prepared in conformity with
generally accepted accounting principles appropriate in the circumstances and
included amounts that were based on management's most prudent judgments and
estimates relating to matters not concluded by fiscal year-end. Management
believes that all material uncertainties have been either appropriately
accounted for or disclosed. All other financial information included in this
annual report is consistent with the financial statements.
The firm of Arthur Andersen LLP, independent public accountants, was
engaged to render a professional opinion on Walgreen Co.'s consolidated
financial statements. Their report contains an opinion based on their audit,
which was made in accordance with generally accepted auditing standards and
procedures, which they believed were sufficient to provide reasonable assurance
that the consolidated financial statements, considered in their entirety, are
not misleading and do not contain material errors.
Three outside members of the Board of Directors comprise the company's
Audit Committee, which meets at least quarterly and is responsible for reviewing
and monitoring the company's financial and accounting practices. In order to
insure and maintain complete independence, Arthur Andersen LLP and the company's
General Auditor have access to meet alone with the Audit Committee, which also
meets with the company's management to discuss financial matters, auditing and
internal accounting controls.
The company's systems are designed to provide an effective system of
internal accounting controls to obtain reasonable assurance at reasonable cost
that assets are safeguarded from material loss or unauthorized use and
transactions are executed in accordance with management's authorization and
properly recorded. To this end, management maintains an internal control
environment which is shaped by established operating policies and procedures, an
appropriate division of responsibility at all organizational levels, and a
corporate ethics policy which is monitored annually. The company also has an
Internal Control Evaluation Committee, comprised primarily of senior management
from the Accounting and Auditing Departments, which oversees the evaluation of
internal controls on a company-wide basis. Management believes it has
appropriately responded to the internal auditors' and independent public
accountants' recommendations concerning the company's internal control system.
__C. R. Walgreen III__ __R. H. Clausen__
C. R. Walgreen III R. H. Clausen
Chairman of the Board Controller
and Chief Executive Officer and Chief Accounting Officer
__R. L. Polark__
R. L. Polark
Senior Vice President
and Chief Financial Officer
THE WALGREEN YEAR...A REVIEW BY QUARTERS (UNAUDITED)
Summary of Quarterly Results, Fiscal 1995 and 1994
(Dollars in Thousands, except per share data)
Quarter Ended
Fiscal
November February May August Year
________________________________________________________________________________
Fiscal 1995
Net sales $2,405,556 $2,806,984 $2,617,368 $2,565,188 $10,395,096
Gross profit 664,792 797,861 729,122 720,977 2,912,752
Net earnings 53,994 111,557 78,990 76,250 320,791
Net earnings per
common share $ .22 $ .45 $ .32 $ .31 $ 1.30
________________________________________________________________________________
Fiscal 1994
Net sales $2,117,954 $2,498,537 $2,335,961 $2,282,526 $9,234,978
Gross profit 589,802 712,958 656,037 661,736 2,620,533
Net earnings 44,213 97,615 71,018 69,083 281,929
Net earnings per
common share $ .18 $ .39 $ .29 $ .28 $ 1.14
================================================================================
________________________________________________________________________________
COMMENTS ON QUARTERLY RESULTS
In further explanation of and supplemental to the quarterly results, the 1995
fourth quarter LIFO adjustment was a credit of $3,350,000 compared to a 1994
credit of $14,335,000. If the 1995 interim results were adjusted to reflect the
actual inventory inflation rates and inventory levels at August 31, 1995,
earnings per share would have been higher in each of the first two quarters by
$.01, and lower in the fourth quarter by $.02. Similar adjustments in 1994
would have increased earnings per share in each of the first two quarters by
$.02 and decreased the fourth quarter by $.04.
WALGREENS NATIONWIDE
State 1995 1994 State 1995 1994
Arizona 120 110 Missouri 68 65
Arkansas 9 4 Nebraska 30 28
California 131 117 New Hampshire 8 9
Colorado 50 47 New Jersey 31 30
Connecticut 31 30 New Mexico 36 35
Florida 344 326 New York 26 21
Illinois 316 313 North Dakota 1 1
Indiana 102 94 Ohio 52 39
Iowa 30 30 Oklahoma 10 9
Kansas 15 14 Pennsylvania 1 0
Kentucky 35 36 Rhode Island 5 4
Louisiana 46 45 Tennessee 76 69
Massachusetts 67 67 Texas 199 189
Michigan 26 24 Washington 5 5
Minnesota 60 59 Wisconsin 110 108
Mississippi 5 3 Puerto Rico 40 37
Total 2,085 1,968
Information is provided as of fiscal year-end.
EXHIBIT 21
Subsidiaries of the Registrant
There are no parents of the Registrant, Walgreen Co. (an Illinois
corporation). The following subsidiaries are wholly owned by the
Registrant, 15 of which are engaged in the operation of retail drug stores,
one, Walgreens Healthcare Plus, Inc., in mail order drug operations, and one,
WHP Health Initiatives, Inc., in pharmacy benefit management.
STATE, COMMONWEALTH OR
NAME COUNTRY OF INCORPORATION
Walgreen Arizona Drug Co. Arizona
Bond Drug Company of Clinton Delaware
Bond Drug Company of Illinois Illinois
Walgreens Healthcare Plus, Inc. Illinois
WHP Health Initiatives, Inc. Illinois
Walgreen Southgate Corp. Indiana
Walgreen Woodmar, Inc. Indiana
Walgreen Louisiana Co., Inc. Louisiana
Walgreen Columbus Co. Nebraska
Walgreen Fremont Co. Nebraska
Walgreen Hastings Co. Nebraska
Walgreen Kearney Co. Nebraska
Walgreen Lincoln Co. Nebraska
Walgreen Eastern Co., Inc. New York
Walgreen New Berlin, Inc. Wisconsin
Walgreen of Puerto Rico, Inc. Puerto Rico
Walgreen of San Patricio, Inc. Puerto Rico
In addition to the above named subsidiaries, the Registrant wholly owns 6
subsidiaries engaged in service or real estate operations, and 18
inactive subsidiaries. These 24 subsidiaries, considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary.
All wholly owned subsidiaries are included in the consolidated financial
statements.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated September 29, 1995 included
or incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File No. 2-79977, File No.
2-79978, File No. 33-5903 and File No. 33-49676.
Arthur Andersen LLP
Chicago, Illinois
November 22, 1995
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 22,245
<SECURITIES> 0
<RECEIVABLES> 270,719
<ALLOWANCES> 24,633
<INVENTORY> 1,453,881
<CURRENT-ASSETS> 1,812,917
<PP&E> 1,248,962
<DEPRECIATION> 581,803
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<INCOME-TAX> 202,950
<INCOME-CONTINUING> 320,791
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