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
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996.
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From _________________ to _______________
Commission file number 1-604.
WALGREEN CO.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1924025
(State of incorporation) (I.R.S. Employer Identification No.)
200 WILMOT ROAD, DEERFIELD, ILLINOIS 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 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 EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS CHICAGO STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by
reference in Part III of this Form 10-K or any amendment to this form 10-K. [ ]
AS OF OCTOBER 31, 1996, 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
$9,064,665,000.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31,
1996, 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 1996 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY
8, 1997, 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, 1996, had net sales of
$11,778,408,000. The company served customers in 34 states and Puerto Rico
through 2,191 retail drugstores and 2 mail order facilities.
In fiscal 1996, the company opened 210 new or relocated drugstores,
completed remodelings of 71 units, and closed 102 drugstores. In the last five
fiscal years, the company has opened 872 new drugstores, 2 new mail service
facilities, acquired 15 stores, completed remodelings of 481 units and closed
341 drugstores and one mail service facility. In addition, one major
distribution center was added during the five-year period.
Prescription sales were 45.2% of total sales for fiscal 1996 compared to
43.4% in 1995 and 40.8% in 1994. 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 at least 230 new stores in fiscal 1997,
including units in the new markets of Detroit and Kansas City. Plans are to
escalate new store openings to 300 per year beginning in 1998 and to be
operating 3,000 stores across the country by the year 2000. Intercom Plus, an
advanced pharmacy computer and workflow system, is expected to be completed in
fiscal 1997.
(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, cosmetics,
toiletries, liquor and beverages, 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 1996 1995 1994
Prescription Drugs 45% 43% 41%
General Merchandise * 24 24 24
Nonprescription Drugs * 13 13 13
Cosmetics, Toiletries * 8 8 9
Liquor, Beverages 7 8 9
Tobacco Products * 3 4 4
Total Sales 100% 100% 100%
====== ====== ======
* Estimated based, in part, on store scanning
information.
(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 cost 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, 1996 ("Annual Report"), which
is incorporated herein by reference.
(vi) Working capital practices.
During fiscal 1996 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 1997 to support working capital
needs. Long-term borrowings may be necessary due to the
planned escalation of new store openings.
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 various
managed care organizations; 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, service 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 1996 were as
follows:
Percent
State of Sales
Florida 19
Illinois 16
Texas 8
Arizona 7
California 6
Wisconsin 5
28 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 77,000 persons, about
25,000 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 6% of the retail stores open at August 31, 1996. The
decision has been made to purchase, rather than lease, more store locations than
in the past. This may necessitate future long-term borrowings. 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 20.7 million to 22.1 million square feet at August 31, 1996. Approximately
60% of company stores have been opened or remodeled during the past five years.
The company's retail drugstore operations are supported by nine warehouses
with a total of approximately 3,300,000 square feet of space, of which 2,500,000
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. In
addition, the company uses public warehouses to handle distribution needs.
Distribution capacity is adequate now, but as the company continues to expand,
additional space will be needed to maintain service levels. Studies are ongoing
to determine where and when distribution space will be added.
The company owns one mail service facility with a ground lease 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, 1996:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
Charles R. Walgreen III 60 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 55 President, Chief Operating
President and Chief Operating Officer and Director
Officer since February 1990
Director since January 1990
Vernon A. Brunner 56 Executive Vice President
Executive Vice President since
February 1990
Glenn S. Kraiss 63 Executive Vice President
Executive Vice President since
February 1990
David W. Bernauer 52 Senior Vice President
Senior Vice President since July 1996
Chief Information Officer since
February 1995
Vice President
February 1990 to July 1996
Treasurer
February 1990 to June 1992
Roger L. Polark 48 Senior Vice President and
Senior Vice President and Chief Financial Officer
Chief Financial Officer since
February 1995
Vice President since June 1988
John A. Rubino 55 Senior Vice President
Senior Vice President since July 1991
William A. Shiel 45 Senior Vice President
Senior Vice President since July 1993
Vice President
May 1985 to July 1993
Robert C. Atlas 61 Vice President
Vice President since September 1987
5
EXECUTIVE OFFICERS OF THE REGISTRANT - continued:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
W. Lynn Earnest 53 Vice President
Vice President since July 1992
Treasurer July 1992 to February 1996
Regional Vice President
July 1980 to June 1992
Robert H. Halaska 56 Vice President
Vice President since April 1995
President, WHP Health Initiatives, Inc.
since October 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 54 Vice President
Vice President since September 1987
J. Randolph Lewis 46 Vice President
Vice President since March 1996
Divisional Vice President, Logistics
and Planning
September 1992 to February 1996
Partner, Ernst & Young
October 1986 to August 1992
Julian A. Oettinger 57 Vice President,
Vice President, Secretary and Secretary and
General Counsel since January 1989 General Counsel
Roger H. Clausen 54 Controller
Controller since June 1988
Jeffrey A. Rein 44 Treasurer
Treasurer since March 1996
District Manager
July 1990 to February 1996
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, 1996 there were
37,878 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, 1996 are as follows:
Dividends Common Stock Prices
Declared 1996 1995
Quarter Ended 1996 1995 High Low High Low
November $ .11 $.0975 $31 1/4 $24 1/2 $21 3/16 $18 1/2
February .11 .0975 36 3/8 28 1/2 24 20 1/4
May .11 .0975 34 7/8 30 7/8 24 13/16 22 13/16
August .11 .0975 34 7/8 30 3/4 26 9/16 23 5/8
Fiscal Year $ .44 $.39 $36 3/8 $24 1/2 $26 9/16 $18 1/2
==========================================================================
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 - 11
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, 1996, 1995 and 1994
Consolidated Balance Sheets at August 31, 1996 and 1995 23
Consolidated Statements of Cash Flows 24
for the years ended August 31, 1996, 1995 and 1994
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, 1996 and 1995 (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
Supplemental Report of Independent Public Accountants 15
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
A report on Form 8-K was filed on July 11, 1996, reporting under "Item
5. Other Events." that the Board of Directors of the Registrant had on July 10,
1996 declared a dividend of one preferred share purchase right for each
outstanding share of common stock of the Registrant. The dividend distribution
was made on August 21, 1996, to shareholders of record on that date. The rights
replaced preferred share purchase rights that expired August 21, 1996.
(c) Exhibits
3. (a) Articles of Incorporation of the company, as amended, filed
with the Securities and Exchange Commission as Exhibit 3(a)
to the company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1995, and incorporated by reference
herein.
(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) Rights Agreement dated as of July 10, 1996, between the
company and Harris Trust and Savings Bank, filed with
the Securities and Exchange Commission as Exhibit 1. to
Registration Statement on Form 8-A on July 11, 1996, and
incorporated by reference herein.
10. (a) Top Management Long-Term Disability Plan. (Note 3)
(b) Executive Short-Term Disability Plan Description. (Note 3)
(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.
________________________________________________________________________________
See Notes on page 13.
10
(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) (i) 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.
(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, 1996, 1995 and 1994 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,
1996. 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, 1996, 1995 AND 1994
(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, 1996 $ 24,633 $ 2,035 $(12,192) $ 14,476
======== ======== ========= ========
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
======== ======== ========= ========
14
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 27, 1996.
Our audits were made for the purpose of forming an opinion
on those statements taken as a whole. Schedule II included
in this Form 10-K is the responsibility of the company's
management, 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 states 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 27, 1996
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 27, 1996
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 27, 1996
C. R. Walgreen III Executive Officer and Director
_____L. D. Jorndt__________ President, Chief Operating November 27, 1996
L. D. Jorndt Officer and Director
_____Roger H. Clausen______ Controller November 27, 1996
Roger H. Clausen
_____Theodore Dimitriou____ Director November 27, 1996
Theodore Dimitriou
_____James J. Howard_______ Director November 27, 1996
James J. Howard
_____C. D. Hunter__________ Director November 27, 1996
C. D. Hunter
_____Cordell Reed__________ Director November 27, 1996
Cordell Reed
_____John B. Schwemm_______ Director November 27, 1996
John B. Schwemm
_____William H. Springer___ Director November 27, 1996
William H. Springer
_____Marilou M. von Ferstel Director November 27, 1996
Marilou M. von Ferstel
16
INDEX TO EXHIBITS
A. DOCUMENTS FILED WITH THIS REPORT
Exhibit 10(j) Walgreen Select Senior Executive Retiree Medical
Expense Plan.
Exhibit 13 Annual Report to Shareholders for the Fiscal
Year Ended August 31, 1996.
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(a) Articles of Incorporation of the company, as amended.
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.
INDEX TO EXHIBITS
(continued)
(e) (i) 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.
(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 10(j)
WALGREEN SELECT SENIOR EXECUTIVE RETIREE
MEDICAL EXPENSE PLAN
Walgreen Co (the "Company") has established the Walgreen
Select Senior Executive Retiree Medical Expense Plan to
provide medical expense benefits to certain eligible
retirees. It is the Company's intention to maintain the
Plan pursuant to this document.
The effective date of the Plan is October 18, 1988. The
named fiduciary of the Plan is the Director of Insurance and
Risk Management, who shall have the authority to control and
manage the operation and administration of the Plan. The
Director of Insurance and Risk Management may delegate
responsibilities for the operation and administration of the
Plan. Plan benefits are paid from the general assets of the
Company.
Officers of the Company in Company Salary Grades 19 and
above who retire with a total years of age plus years of
service equalling 75 or greater and who are not eligible
for, or do not elect, retiree coverage under the Walgreen
Major Medical Plan are eligible for the Plan upon
retirement, except for those periods when participants are
covered by other employers' medical plans. The benefit is
to be provided to the participant and his or her spouse for
life, and consists of an annual allowance of up to $2,500
per year, per covered individual, to age 65 and $1,250 per
year thereafter, such allowance to be used for the
reimbursement of amounts paid by the participant or spouse
for medical expenses and services or for premiums for
individual medical insurance.
The Chief Executive Officer has the authority to amend the
Plan, to appoint and remove fiduciaries, and to terminate
the Plan, all of which shall be done by written instrument.
The Director of Insurance and Risk Management shall have the
sole authority and responsibility to review and make a final
decision on all appeals from denial of benefits under the
Plan.
This instrument is executed for the express purpose of
complying with certain requirements of Section 402 of the
Employee Retirement Income Security Act of 1974 and Section
89 of the Internal Revenue Code of 1986 and no other
purpose, expressed or implied, is intended. This Plan is
not an employment contract and does not give any person the
right to be continued in employment, or to his current terms
and conditions of employment.
WALGREEN CO.
Date: 10-18-88 By: C.R. Walgreen III
C.R. Walgreen III
WALGREENS
INTRACOMPANY CORRESPONDENCE
Date July 5, 1996
Subject Select Senior Executive Retiree Medical Expense Plan
From C.L. Ames, Plan Administrator
To C.R. Walgreen III
The Select Senior Executive Retiree Medical Expense Plan was
adopted in 1988 to provide an allowance for the
reimbursement of medical expenses or individual insurance
premiums to certain executives who do not qualify for
regular retiree coverage under the Walgreen Major Medical
Plan. The benefit level established in 1988 has not been
increased since that time.
A review of our own plan experience and developments in the
healthcare marketplace indicates that the allowance
established is no longer providing the level of benefit
intended. The recommendation is therefore made that the
annual allowance payable to a covered individual and spouse
be increased from a maximum of $2,500 per year to a maximum
of $3,500 per year to age 65, and that the maximum after age
65 be increased from $1,250 per year to $1,775 per year.
The change, if approved, will be effective September 1,
1996.
The Plan document authorizes the Company's Chief Executive
Officer to amend the Plan by written instrument. If you
approve the proposed changes, please so indicate by signing
and dating below.
Amendment approved as proposed.
C.R. Walgreen III 7-10, 1996
C.R. Walgreen III
Chairman and Chief Executive Officer
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 1996 1995 1994 1993
<S> <C> <C> <C> <C>
NET SALES $11,778,408 $10,395,096 $9,234,978 $8,294,840
COSTS AND DEDUCTIONS
Cost of sales 8,514,819 7,482,344 6,614,445 5,959,002
Selling, occupancy and
administration 2,659,525 2,392,731 2,164,889 1,929,630
Other (income) expense (1) (2,873) (3,720) (2,777) 6,532
Total Costs and Deductions 11,171,471 9,871,355 8,776,557 7,895,164
EARNINGS
Earnings before income tax
provision and cumulative
effect of accounting changes 606,937 523,741 458,421 399,676
Income tax provision 235,188 202,950 176,492 154,387
Earnings before cumulative
effect of accounting
changes 371,749 320,791 281,929 245,289
Cumulative effect of accounting
changes (2) - - - (23,623)
Net Earnings $ 371,749 $ 320,791 $ 281,929 $ 221,666
================================================================================
PER COMMON SHARE (3)
Earnings before cumulative
effect of accounting
changes $ 1.50 $ 1.30 $ 1.14 $ .99
Net Earnings (2) 1.50 1.30 1.14 .90
Dividends Declared .44 .39 .34 .30
Book Value 8.30 7.28 6.39 5.60
================================================================================
NON-CURRENT LIABILITIES
Long-term debt $ 3,403 $ 2,395 $ 1,790 $ 6,210
Deferred income taxes 145,218 142,278 137,741 144,186
Other non-current liabilities 259,965 237,586 213,796 176,218
================================================================================
ASSETS AND EQUITY
Total Assets $3,633,646 $3,252,607 $2,872,841 $2,506,034
================================================================================
Shareholders' Equity $2,043,105 $1,792,586 $1,573,640 $1,378,751
================================================================================
Return on Average Shareholders'
Equity (2) 19.4% 19.1% 19.1% 17.0%
================================================================================
________________________________________________________________________________
<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>
1992 1991 1990 1989 1988 1987 1986
<C> <C> <C> <C> <C> <C> <C>
$7,474,961 $6,733,044 $6,047,494 $5,380,133 $4,883,520 $4,281,606 $3,660,553
5,377,738 4,829,186 4,356,392 3,848,546 3,468,973 3,000,988 2,550,072
1,738,770 1,582,725 1,406,922 1,278,116 1,190,295 1,069,859 914,003
5,448 9,189 3,257 9,632 15,282 16,576 8,852
7,121,956 6,421,100 5,766,571 5,136,294 4,674,550 4,087,423 3,472,927
353,005 311,944 280,923 243,839 208,970 194,183 187,626
132,377 116,979 106,346 89,597 79,908 90,646 84,489
220,628 194,965 174,577 154,242 129,062 103,537 103,137
- - - - - - -
$ 220,628 $ 194,965 $ 174,577 $ 154,242 $ 129,062 $ 103,537 $ 103,137
=============================================================================
$ .89 $ .79 $ .71 $ .63 $ .52 $ .42 $ .42
.89 .79 .71 .63 .52 .42 .42
.26 .23 .20 .17 .15 .14 .13
5.01 4.39 3.85 3.35 2.90 2.53 2.25
=============================================================================
$ 18,749 $ 122,960 $ 146,740 $ 150,121 $ 172,111 $ 141,433 $ 136,158
171,820 155,314 138,926 118,320 105,548 97,399 84,604
103,820 85,064 77,075 68,624 55,314 50,840 45,592
=============================================================================
$2,346,942 $2,074,359 $1,896,146 $1,666,322 $1,501,482 $1,354,217 $1,189,965
=============================================================================
$1,233,310 $1,081,157 $ 947,249 $ 823,401 $ 712,644 $ 622,328 $ 553,611
=============================================================================
19.1% 19.2% 19.7% 20.1% 19.3% 17.6% 19.9%
=============================================================================
_____________________________________________________________________________
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fiscal 1996 was the twenty-second consecutive year of record sales and
earnings. Net earnings were $372 million or $1.50 per share, an increase of
15.9% from last year's earnings of $321 million or $1.30 per share. Earnings
increases resulted from higher sales and improved expense ratios.
Total net sales increased by 13.3% to $11.8 billion in fiscal 1996 compared
to increases of 12.6% in 1995 and 11.3% in 1994. 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.
Comparable drugstore (those open at least one year) sales were up 8.5% in 1996,
7.2% in 1995 and 5.5% in 1994. New store openings accounted for 7.6% of the
sales gains in 1996 and 1995 and 7.4% in 1994. The company operated 2,193
drugstores as of August 31, 1996, compared to 2,085 a year earlier.
Prescription sales increased 18.0% in 1996, 19.8% in 1995 and 18.9% in 1994.
Comparable drugstores were up 13.0%, 13.8% and 12.1% in 1996, 1995 and 1994,
respectively. Prescription sales were 45.2% of total sales for fiscal 1996
compared to 43.4% in 1995 and 40.8% in 1994. 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 27.7% of sales from 28.0%
last year and 28.4% in fiscal 1994. Prescription margins continue to decrease
as third party and mail service sales become larger portions of prescription
sales. The company is responding to gross margin pressures by emphasizing
minimum third party profitability standards.
The company uses the last-in, first-out (LIFO) method of inventory
valuation. The effective LIFO inflation rates were .68% in 1996, 1.29% in 1995
and .3% in 1994, which resulted in charges to cost of sales of $12.8 million in
1996, $21.4 million in 1995 and $5.1 million in 1994. Inflation on prescription
inventory was 2.3% in 1996 and 2.8% in both fiscal 1995 and 1994.
Selling, occupancy and administration expenses were 22.6% of sales in fiscal
1996, 23.0% of sales in fiscal 1995 and 23.4% of sales in fiscal 1994. The
fiscal 1996 decrease, as a percent to sales, was caused by lower advertising
expenses, insurance costs and improved accounts receivable collection
experience. The fiscal 1995 decrease, as a percent to sales, was caused by
store salaries, insurance and advertising.
Interest income was relatively constant over the three year periods.
Average net investment levels were approximately $76 million in 1996, $59
million in 1995 and $105 million in 1994. The lower investment levels in fiscal
1996 and 1995 were offset by higher interest rates.
The fiscal 1996 and 1995 effective tax rates were 38.75% compared to 38.5%
in 1994. The increases in rates compared to 1994 were due to higher state
income taxes and estimated interest on tax audits.
FINANCIAL CONDITION
Cash and cash equivalents and marketable securities were $9 million at
August 31, 1996, compared to $22 million at August 31, 1995. Short-term
investment objectives are to maximize yields while minimizing risk and
maintaining liquidity. To attain these objectives, investment limits are placed
on the amount, type and issuer of securities.
Net cash provided by operating activities increased $66 million compared to
the same period a year ago. This increase resulted primarily from higher
earnings. The company's ongoing profitability is expected to continue as the
principal source for providing expansion and remodeling programs, dividends to
shareholders and funding for various technological improvements.
Net cash used for investing activities was $299 million for both fiscal 1996
and 1995. Additions to property and equipment were $365 million compared to
$310 million last year. During the year, 210 new or relocated drugstores were
opened which included five acquired locations. This compares to 206 new or
relocated drugstores opened in the same period last year. New stores are owned
or leased. There were 57 owned locations opened during the year or under
construction at August 31, 1996 versus 17 for the same period last year.
Capital expenditures for fiscal 1997 are expected to exceed $400 million.
During the year, the company borrowed $82.2 million from corporate-owned life
insurance policies. Sales of marketable securities provided $30.5 million last
year.
The company expects to open at least 230 new stores in fiscal 1997,
including units in the new markets of Detroit and Kansas City. Plans are to
escalate new store openings to 300 per year beginning in 1998 and to be
operating 3,000 stores across the country by the year 2000. This may
necessitate future long-term borrowings. Intercom Plus, an advanced pharmacy
computer and workflow system, is expected to be completed in fiscal 1997.
Net cash used for financing activities was $125 million for fiscal 1996
compared to $102 million for fiscal 1995. During both periods, the company
obtained funds through the placement of commercial paper and repaid those
borrowings. At August 31, 1996, the company had $132 million in unused bank
lines of credit and $100 million of unissued authorized debt securities,
previously filed with the Securities and Exchange Commission.
In fiscal 1995, 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, including after-tax interest, was remanded back to the Tax Court for
further findings which are in the process of being finalized. As of August 31,
1996, the company has adequately provided for the tax and related interest.
Financial Accounting Board Statement No. 123 "Accounting for Stock-Based
Compensation" was issued in October 1995. This pronouncement will require the
company to disclose the effect on income of stock options based on a formula
outlined in the bulletin. This disclosure will be required in fiscal 1997.
This pronouncement is not expected to materially 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, 1996, 1995 and 1994
(Dollars in Thousands, except per share data)
________________________________________________________________________________
EARNINGS 1996 1995 1994
NET SALES $11,778,408 $10,395,096 $9,234,978
COSTS AND DEDUCTIONS
Cost of sales 8,514,819 7,482,344 6,614,445
Selling, occupancy and administration 2,659,525 2,392,731 2,164,889
11,174,344 9,875,075 8,779,334
OTHER (INCOME) EXPENSE
Interest income (5,098) (4,910) (5,363)
Interest expense 2,225 1,190 2,586
(2,873) (3,720) (2,777)
EARNINGS
Earnings before income tax provision 606,937 523,741 458,421
Income tax provision 235,188 202,950 176,492
Net earnings $ 371,749 $ 320,791 $ 281,929
===============================================================================
_______________________________________________________________________________
NET EARNINGS PER
COMMON SHARE $ 1.50 $ 1.30 $ 1.14
===============================================================================
_______________________________________________________________________________
RETAINED EARNINGS 1996 1995 1994
Balance, beginning of year $1,715,667 $1,496,721 $1,301,832
Net earnings 371,749 320,791 281,929
Cash dividends declared:
$.44 per share in 1996,
$.39 in 1995 and $.34 in 1994(108,302) (95,995) (83,688)
Employee stock purchase and
option plans (12,928) (5,850) (3,352)
Balance, end of year $1,966,186 $1,715,667 $1,496,721
================================================================================
________________________________________________________________________________
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, 1996 and 1995
(Dollars in Thousands)
________________________________________________________________________________
ASSETS 1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 8,819 $ 22,245
Accounts receivable 288,538 246,086
Inventories 1,631,974 1,453,881
Other current assets 89,707 90,705
Total Current Assets 2,019,038 1,812,917
NON-CURRENT ASSETS
Property and equipment, at cost, less accumulated
depreciation and amortization 1,448,368 1,248,962
Other non-current assets 166,240 190,728
TOTAL ASSETS $3,633,646 $3,252,607
================================================================================
________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 691,836 $ 606,263
Accrued expenses and other liabilities 467,359 448,219
Income taxes 22,760 23,280
Total Current Liabilities 1,181,955 1,077,762
NON-CURRENT LIABILITIES
Deferred income taxes 145,218 142,278
Other non-current liabilities 263,368 239,981
Total Non-Current Liabilities 408,586 382,259
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 1996
and 1995, at stated value 76,919 76,919
Retained earnings 1,966,186 1,715,667
Total Shareholders' Equity 2,043,105 1,792,586
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,633,646 $3,252,607
================================================================================
________________________________________________________________________________
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, 1996, 1995 and 1994
(Dollars in Thousands)
_______________________________________________________________________________
FISCAL YEAR 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 371,749 $ 320,791 $ 281,929
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization 147,311 131,537 118,118
Deferred income taxes 2,992 (7,213) 5,653
Other 4,619 3,388 15,983
Changes in operating assets and
liabilities -
Inventories (178,093) (190,481) (169,365)
Trade accounts payable 85,573 73,447 105,631
Accounts receivable, (60,011) (36,265) (50,692)
Accrued expenses and other
liabilities 42,091 41,669 35,051
Income taxes (8,820) 905 693
Insurance reserves 2,910 14,982 16,797
Other current assets 946 (7,807) (3,910)
Net cash provided by operating activities 411,267 344,953 355,888
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (364,586) (310,254) (289,976)
Net borrowing against (investment in)
corporate-owned life insurance 47,370 (34,140) (6,445)
Net proceeds from (purchases of)
marketable securities - 30,510 (815)
Disposition of property and equipment 17,869 15,242 13,704
Net cash used for investing activities (299,347) (298,642) (283,532)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (105,225) (92,918) (81,226)
Cost of employee stock purchase and
option plans (12,928) (5,850) (3,352)
(Purchases for) proceeds from employee
stock plans (6,757) 3,916 4,300
Payments of long-term obligations (436) (7,129) (5,760)
Net cash used for financing activities (125,346) (101,981) (86,038)
CHANGES IN CASH AND CASH EQUIVALENTS
Net decrease in cash and
cash equivalents (13,426) (55,670) (13,682)
Cash and cash equivalents at
beginning of year 22,245 77,915 91,597
Cash and cash equivalents at
end of year $ 8,819 $ 22,245 $ 77,915
===============================================================================
_______________________________________________________________________________
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
DESCRIPTION OF BUSINESS
The company is principally in the retail drugstore business. Stores are located
in 34 states and Puerto Rico. At August 31, 1996, there were 2,191 retail
drugstores and two mail service facilities. Prescription sales were 45.2% of
total sales for fiscal 1996 compared to 43.4% in 1995 and 40.8% in 1994.
Prescription sales continue to grow and become a larger portion of the company's
business.
BASIS OF PRESENTATION
The consolidated statements include the accounts of the company and its
subsidiaries. All significant intercompany transactions have been eliminated.
The financial statements are prepared in accordance with generally accepted
accounting principles and include amounts based on management's most prudent
judgments and estimates. Actual results may differ from these estimates.
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 $143,000,000 and $130,000,000 at August 31, 1996 and
1995, respectively, are included in cash and cash equivalents as reductions of
other cash balances.
FINANCIAL INSTRUMENTS
The company had approximately $12,000,000 and $18,000,000 of outstanding letters
of credit at August 31, 1996 and 1995, respectively, which guaranteed foreign
trade purchases. Additional outstanding letters of credit of $59,000,000 at
August 31, 1996 and $57,000,000 at August 31, 1995 were related to insurance
activities. The company also has purchase commitments of approximately
$68,000,000 and $17,000,000 at August 31, 1996 and 1995, respectively, related
to the purchase of store locations. There were no investments in derivative
financial instruments during fiscal 1996 and 1995.
INVENTORIES
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market
basis. At August 31, 1996 and 1995, inventories would have been greater by
$427,767,000 and $415,015,000, 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.
LONG-LIVED ASSETS
In fiscal 1996 the company adopted Financial Accounting Board Statement No. 121
"Accounting for the Impairment of Long-Lived Assets". This pronouncement, which
was adopted early, 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. No material effect on the financial
statements occurred due to the previous existing accounting policy conforming in
all material aspects to the new standard.
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, completely remodeled or
impaired resulting in the carrying amount not being recoverable. Fully
depreciated property and equipment are removed from the cost and related
accumulated depreciation and amortization accounts.
Property and equipment consists of (In Thousands):
1996 1995
Land and land improvements $ 128,772 88,097
Buildings and building improvements 619,712 555,645
Equipment 1,197,352 1,047,548
Capitalized systems development costs 141,732 117,545
Capital lease properties 19,969 21,930
2,107,537 1,830,765
Less: accumulated depreciation and amortization 659,169 581,803
$1,448,368 $1,248,962
===============================================================================
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, 1996 and 1995, were $98,409,000 and
$84,910,000, respectively. Amortization of these costs were $10,688,000,
$11,053,000 and $8,901,000 in 1996, 1995 and 1994, 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 $50,386,000 in 1996, $44,315,000 in 1995 and
$37,683,000 in 1994.
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 248,436,005 in 1996,
247,527,030 in 1995 and 247,292,458 in 1994. 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 $82,360,000 in 1996,
$85,907,000 in 1995 and $93,467,000 in 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTEREST EXPENSE
The company capitalized $254,000, $751,000 and $482,000 of interest expense as
part of significant construction projects during fiscal 1996, 1995 and 1994,
respectively. Interest paid, net of amounts capitalized, was $2,702,000 in
1996, $2,950,000 in 1995 and $1,954,000 in 1994.
LEASES
Although some locations are owned, 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, 1996, under all leases having an
initial or remaining non-cancelable term of more than one year are shown below
(In Thousands):
YEAR
1997 $ 325,083
1998 345,140
1999 326,756
2000 315,165
2001 300,713
Later 3,119,089
Total minimum lease payments $4,731,946
================================================================================
The above minimum lease payments include minimum rental commitments related to
capital leases amounting to $13,072,000 at August 31, 1996. The present value
of net minimum capital lease payments, due after 1997, 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 $14,270,000 on leases due in the future under
non-cancelable subleases.
Rental expense was as follows (In Thousands):
1996 1995 1994
Minimum rentals $317,993 $279,217 $242,637
Contingent rentals 35,492 34,707 34,107
Less: Sublease rental income (2,932) (2,845) (2,707)
$350,553 $311,079 $274,037
================================================================================
INCOME TAXES
The provision for income taxes consists of the following (In Thousands):
1996 1995 1994
Current provision -
Federal $196,216 $177,023 $145,381
State 35,980 33,140 25,458
232,196 210,163 170,839
Deferred provision -
Federal 2,825 (6,025) 3,881
State 167 (1,188) 1,772
2,992 (7,213) 5,6530
$235,188 $202,950 $176,492
================================================================================
The components of the deferred provision were (In Thousands):
1996 1995 1994
Employee benefit plans $(14,793) $ (9,154) $ (6,956)
Accelerated depreciation 12,446 10,191 20,756
Insurance 1,101 (5,451) (2,763)
Other 4,238 (2,799) (5,384)
$ 2,992 $ (7,213) $ 5,653
================================================================================
The deferred tax assets and liabilities included in the Consolidated Balance
Sheet as of August 31, 1996, consist of the following (In Thousands):
Assets Liabilities Total
Current -
Employee benefit plans $ 36,614 $ (6,983) $ 29,631
Inventory 14,761 (33,018) (18,257)
Insurance 11,638 - 11,638
Allowances for doubtful accounts 6,045 - 6,045
Other 15,217 (3,782) 11,435
84,275 (43,783) 40,492
Non-current -
Accelerated depreciation - (253,220) (253,220)
Employee benefit plans 46,614 - 46,614
Insurance 28,597 - 28,597
Other 33,117 (326) 32,791
108,328 (253,546) (145,218)
$192,603 $(297,329) $(104,726)
================================================================================
Income taxes paid were $241,016,000, $209,258,000 and $170,146,000 during the
fiscal years ended August 31, 1996, 1995 and 1994, 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, 1996, the company had approximately $132,000,000 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):
1996 1995 1994
Average outstanding during the year $ 19,327 $ 5,996 $ 2,011
Largest month-end balance 77,289 35,000 12,977
(Nov) (Nov) (Nov)
Weighted average interest rate 5.8% 5.5% 3.3%
================================================================================
CONTINGENCIES
The company is involved in various legal proceedings incidental to the normal
course of business. Company management is of the opinion, based upon the advice
of General Counsel, that although the outcome of such litigation cannot be
forecast with certainty, the final disposition should not have a material
adverse effect on the company's consolidated financial position or results of
operations.
CAPITAL STOCK
The company's common stock is subject to a Rights Agreement under which
each share has attached to it a Right to purchase one one-hundredth of a share
of a new series of Preferred Stock, at a price of $150.00 per Right, in the
event a person or group acquires or attempts to acquire 15% of the then
outstanding shares of the company. In the event that a person or group acquires
15% 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, 2006, but may be redeemed by the company at a price of $.01
per Right at any time prior to a public announcement that 15% or more of the
company's common stock has been acquired.
As of August 31, 1996, 25,818,064 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 1,825,750 and 1,913,090 at August 31, 1996 and 1995,
respectively.
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 $100,000, $314,000 and $986,000 in
1996, 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 7,683,413 and
7,723,712 at August 31, 1996 and 1995, respectively. The options granted during
1994 through 1996 have a two-year holding period.
Stock option transactions in fiscal 1994, 1995 and 1996 are summarized as
follows:
Per Share
Shares Option Price Exercisable
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
Granted 149,568 24.500- 33.500
Exercised (379,150) 6.563- 19.750
Cancelled and expired (21,424) 18.813- 19.750
Outstanding August 31, 1996 7,226,804 $ 6.625-$33.500 5,370,798
================================================================================
POSTRETIREMENT BENEFITS
The components of postretirement benefit cost for fiscal 1996, 1995 and 1994
were as follows (In Thousands):
1996 1995 1994
Service costs - benefits earned during the year $4,130 $3,781 $2,859
Interest cost on accumulated postretirement
benefit obligation 5,788 5,576 4,638
Amortization of unrecognized actuarial amount 79 229 271
Total postretirement benefit cost $9,997 $9,586 $7,768
====== ====== ======
The company's unfunded accumulated postretirement benefit liability at August
31, included in the Consolidated Balance Sheets were as follows (In Thousands):
1996 1995
Retirees $21,696 $20,210
Fully eligible active plan participants 11,036 9,834
Other active plan participants 48,396 45,747
Accumulated postretirement benefit obligation 81,128 75,791
Unrecognized actuarial amount 19 (1,820)
Accrued postretirement benefit liability $81,147 $73,971
======= =======
The accumulated postretirement benefit obligation was determined assuming the
discount rate was 7.75% and the healthcare cost trend rate was 7.0% for 1996
with a gradual decline over a 13-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, 1996 by $15,027,000 and the service and interest cost components
of the fiscal 1996 net periodic postretirement benefit cost by $2,905,000. 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):
1996 1995
Accounts receivable -
Accounts receivable $303,014 $270,719
Allowances for doubtful accounts (14,476) (24,633)
$288,538 $246,086
===============================================================================
Other non-current assets -
Cash surrender value of life insurance, net
of borrowings $133,522 $166,719
Other 32,718 24,009
$166,240 $190,728
==============================================================================
Accrued expenses and other liabilities -
Accrued salaries $137,032 $139,438
Taxes other than income taxes 74,511 63,169
Profit sharing 73,592 60,094
Other 182,224 185,518
$467,359 $448,219
==============================================================================
Other non-current liabilities -
Insurance $ 79,704 $ 73,733
Postretirement benefit obligation 78,347 71,370
Accrued rent 56,737 50,482
Deferred compensation 26,098 23,667
Deferred income 12,368 10,401
Obligations under capital leases 6,711 7,933
Long-term debt, net of current maturities 3,403 2,395
$263,368 $239,981
==============================================================================
Long-term debt includes notes and other real estate obligations with interest
rates ranging from 6.25% to 8.75%. Annual maturities due on long-term debt are
$431,000, $462,000, $488,000, $91,000 and $98,000 for fiscal 1997 through 2001,
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, 1996 and
1995, and the related consolidated statements of earnings, retained
earnings and cash flows for each of the three years in the period ended
August 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois,
September 27, 1996
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 1996 and 1995
(Dollars in Thousands, except per share data)
Quarter Ended
Fiscal
November February May August Year
________________________________________________________________________________
Fiscal 1996
Net sales $2,692,767 $3,179,089 $2,988,836 $2,917,716 $11,778,408
Gross profit 738,982 889,286 823,224 812,097 3,263,589
Net earnings 63,655 126,801 91,575 89,718 371,749
Net earnings per
common share $ .26 $ .51 $ .37 $ .36 $ 1.50
________________________________________________________________________________
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
================================================================================
________________________________________________________________________________
COMMENTS ON QUARTERLY RESULTS
In further explanation of and supplemental to the quarterly results, the 1996
fourth quarter LIFO adjustment was a credit of $4,839,000 compared to a 1995
credit of $3,350,000. If the 1996 and 1995 interim results were adjusted to
reflect the actual inventory inflation rates and inventory levels as computed at
year end, earnings per share would have been higher in each of the first two
quarters by $.01, and lower in the fourth quarter by $.02.
WALGREENS NATIONWIDE
State 1996 1995 State 1996 1995
Arizona 128 120 Nevada 2 0
Arkansas 8 9 New Hampshire 8 8
California 139 131 New Jersey 37 31
Colorado 49 50 New Mexico 36 36
Connecticut 32 31 New York 26 26
Florida 370 344 North Dakota 1 1
Illinois 318 316 Ohio 56 52
Indiana 103 102 Oregon 1 0
Iowa 30 30 Oklahoma 19 10
Kansas 15 15 Pennsylvania 2 1
Kentucky 36 35 Rhode Island 7 5
Louisiana 48 46 Tennessee 76 76
Massachusetts 71 67 Texas 213 199
Michigan 26 26 Virginia 2 0
Minnesota 61 60 Washington 12 5
Mississippi 5 5 Wisconsin 114 110
Missouri 71 68 Puerto Rico 42 40
Nebraska 29 30 Total 2,193 2,085
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, 12 of which are engaged in the operation of retail drug stores,
one, Walgreens Healthcare Plus, Inc., in mail order drug operations, one, WHP
Health Initiatives, Inc., in pharmacy benefit management and one, Walgreen
Advance Care, Inc., in retailing of health care maintenance services.
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 Advance Care, Inc. Illinois
Walgreens Healthcare Plus, Inc. Illinois
WHP Health Initiatives, Inc. Illinois
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 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 27, 1996 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 27, 1996
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K ANNUAL REPORT FOR THE YEAR ENDED AUGUST 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 8,819
<SECURITIES> 0
<RECEIVABLES> 303,014
<ALLOWANCES> 14,476
<INVENTORY> 1,631,974
<CURRENT-ASSETS> 2,019,038
<PP&E> 1,448,368
<DEPRECIATION> 659,169
<TOTAL-ASSETS> 3,633,646
<CURRENT-LIABILITIES> 1,181,955
<BONDS> 10,114
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<COMMON> 76,919
<OTHER-SE> 1,966,186
<TOTAL-LIABILITY-AND-EQUITY> 3,633,646
<SALES> 11,778,408
<TOTAL-REVENUES> 11,778,408
<CGS> 8,514,819
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<OTHER-EXPENSES> 2,659,525
<LOSS-PROVISION> 2,035
<INTEREST-EXPENSE> 2,225
<INCOME-PRETAX> 606,937
<INCOME-TAX> 235,188
<INCOME-CONTINUING> 371,749
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