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, 1997.
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 ($.15625 PAR VALUE) CHICAGO STOCK EXHCANGE
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. [X]
AS OF OCTOBER 31, 1997, THERE WERE 494,500,182 SHARES OF WALGREEN CO.
COMMON STOCK, PAR VALUE $.15625 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
$13,596,332,000.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED AUGUST 31,
1997, 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 1997 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JANUARY
14, 1998, 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, 1997, had net sales of
$13.4 billion. The company served customers in 34 states and Puerto Rico
through 2,356 retail drugstores and 2 mail service facilities.
In fiscal 1997, the company opened 251 new or relocated drugstores,
completed remodelings of 46 units, and closed 86 drugstores. In the last five
fiscal years, the company has opened 995 new drugstores, 2 new mail service
facilities, acquired 15 stores, completed remodelings of 409 units and closed
389 drugstores and one mail service facility. In addition, one major
distribution center was added during the five-year period.
Prescription sales were 47.1% of total sales for fiscal 1997 compared to
45.2% in 1996 and 43.4% in 1995. 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 280 new stores in fiscal 1998 and 360
in fiscal 1999. Expectations are that 3000 drugstores will be operating by the
year 2000. The company believes that additional expansion across the country is
still possible beyond the year 2000. The rollout of Intercom Plus, an advanced
pharmacy computer and workflow system, was completed in November 1997.
Charles R. Walgreen III will retire as Chief Executive Officer of the
company in January 1998. L. Daniel Jorndt, currently President and Chief
Operating Officer, will assume the additional responsibility as Chief Executive
Officer. Mr. Walgreen III will continue to serve on the Board of Directors and
preside over board meetings.
(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 1997 1996 1995
Prescription Drugs 47% 45% 43%
General Merchandise * 23 24 24
Nonprescription Drugs * 13 13 13
Cosmetics, Toiletries * 8 8 8
Liquor, Beverages 6 7 8
Tobacco Products * 3 3 4
Total Sales 100% 100% 100%
====== ====== ======
* Estimates 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. The company has not experienced
significant energy shortages nor have changes in energy costs
materially affected the costs of operations. Energy savings
programs are being implemented to further control these
costs.
(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, 1997 ("Annual Report"), which
is incorporated herein by reference.
(vi) Working capital practices.
During fiscal 1997 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 1998 to support working capital
needs. Long-term borrowings may be necessary due to the
planned increase in owned locations.
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 1997 were as
follows:
Percent
State of Sales
Florida 20%
Illinois 15
Texas 8
Arizona 7
California 7
Wisconsin 5
28 other states and Puerto Rico 38
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 85,000 persons, about
29,000 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 32 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 9% of the retail stores open at August 31, 1997. The
decision has been made to purchase, rather than lease, more store locations in
the future 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 22.1 million square feet at August 31, 1996, to 23.9 million
square feet at August 31, 1997. 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 certain 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, 1997:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
Charles R. Walgreen III 61 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 56 President, Chief Operating
President and Chief Operating Officer and Director
Officer since February 1990
Director since January 1990
Vernon A. Brunner 57 Executive Vice President
Executive Vice President since
February 1990
Glenn S. Kraiss 64 Executive Vice President
Executive Vice President since
February 1990
David W. Bernauer 53 Senior Vice President
Senior Vice President since July 1996
Chief Information Officer since
February 1995
Vice President
February 1990 to July 1996
Roger L. Polark 49 Senior Vice President and
Senior Vice President and Chief Financial Officer
Chief Financial Officer since
February 1995
Vice President June 1988 to February 1995
John A. Rubino 56 Senior Vice President
Senior Vice President since July 1991
William A. Shiel 46 Senior Vice President
Senior Vice President since July 1993
Vice President
May 1985 to July 1993
Robert C. Atlas 62 Vice President
Vice President since September 1987
5
EXECUTIVE OFFICERS OF THE REGISTRANT - continued:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
W. Lynn Earnest 54 Vice President
Vice President since July 1992
Treasurer July 1992 to February 1996
Robert H. Halaska 57 Vice President
Vice President since April 1995
President, WHP Health Initiatives, Inc.
since October 1995
President, Walgreens Healthcare Plus,
Inc. since September 1991
Jerome B. Karlin 55 Vice President
Vice President since September 1987
J. Randolph Lewis 47 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 58 Vice President,
Vice President, Secretary and Secretary and
General Counsel since January 1989 General Counsel
Roger H. Clausen 55 Controller
Controller since June 1988
Jeffrey A. Rein 45 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, 1997 there were
53,253 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, 1997 are incorporated herein by reference to the
caption "The Walgreen Year...A review by Quarters" on page 30 of the Annual
Report.
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, 1997, 1996 and 1995
Consolidated Balance Sheets at August 31, 1997 and 1996 23
Consolidated Statements of Cash Flows 24
for the years ended August 31, 1997, 1996 and 1995
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, 1997 and 1996 (Unaudited)
Walgreens Nationwide 32
(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(o) 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 were filed on Form 8-K during the quarter, which ended
August 31, 1997.
(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 July 9, 1997.
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) (i) 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.
(ii) Walgreen Co. Management Incentive Plan
Amendment No. 1 (effective April 9, 1997), filed with
the Securities and Exchange Commission as Exhibit 10 to
the company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1997, and incorporated by
reference herein.
(d) Walgreen Co. Restricted Performance Share Plan, as amended,
filed with the Securities and Exchange Commission as Exhibit
10(a) to the company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1997, and incorporated by
reference herein.
________________________________________________________________________________
See Notes on page 13.
10
(e) Walgreen Co. Executive Stock Option Plan, as amended, 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 February 28, 1997, 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)
(vi) Walgreen Co. 1997 Executive Deferred
Compensation/Capital Accumulation Plan Series I,
filed with the Securities and Exchange Commission as
Exhibit 10(c) to the company's Quarterly Report on
Form 10-Q for the quarter ended February 28, 1997, and
incorporated by reference herein.
(vii) Walgreen Co. 1997 Executive Deferred
Compensation/Capital Accumulation Plan Series 2,
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 February 28, 1997, and
incorporated by reference herein.
(h) Walgreen Co. Executive Deferred Profit-Sharing Plan (as
restated effective April 13, 1994), filed with the Securities
and Exchange Commission as Exhibit 10(b) to the company's
Quarterly Report on Form 10-Q for the quarter ended May 31,
1994, and incorporated by reference herein.
(i) (i) Form of Change of Control Employment Agreements.
(Note 5)
(ii) Amendment to Employment Agreements adopted July 12,
1989. (Note 7)
________________________________________________________________________________
See Notes on page 13.
11
(j) Walgreen Select Senior Executive Retiree Medical Expense
Plan, filed with the Securities and Exchange Commission as
Exhibit 10(j) to the company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1996, and incorporated by
reference herein.
(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.
(o) (i) Walgreen Co. Nonemployee Director Stock Plan, filed
with the Securities and Exchange Commission as Exhibit
10(e) to the Company's Quarterly Report on 10-Q for
the quarter ended February 28, 1997, and incorporated
by reference herein.
(ii) Walgreen Co. Nonemployee Director Stock Plan Amendment
No. 1 (effective September 1, 1997).
11. The required information for this Exhibit is contained in the
Consolidated Statements of Earnings and Retained Earnings for the
years ended August 31, 1997, 1996 and 1995 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,
1997. 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 (File No. 1-604),
and incorporated by reference herein.
13
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
(Dollars in Millions)
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, 1997 $ 14 $ 14 $ (15) $ 13
==== ==== ====== ====
Year ended August 31, 1996 $ 25 $ 2 $ (13) $ 14
==== ==== ====== ====
Year ended August 31, 1995 $ 22 $ 7 $ (4) $ 25
==== ==== ====== ====
14
ARTHUR ANDERSEN LLP
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 26, 1997.
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. Schedule II 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.
/s/Arthur Andersen LLP
Chicago, Illinois
September 26, 1997
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 /s/ R. L. Polark_______ Date: November 26, 1997
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
/s/ C. R. Walgreen III__ Chairman of the Board, Chief November 26, 1997
C. R. Walgreen III Executive Officer and Director
/s/ L. D. Jorndt__________ President, Chief Operating November 26, 1997
L. D. Jorndt Officer and Director
/s/ Roger H. Clausen______ Controller November 26, 1997
Roger H. Clausen
/s/ William C. Foote____ Director November 26, 1997
William C. Foote
/s/ James J. Howard_______ Director November 26, 1997
James J. Howard
/s/ C. D. Hunter__________ Director November 26, 1997
C. D. Hunter
/s/ Cordell Reed__________ Director November 26, 1997
Cordell Reed
/s/ John B. Schwemm_______ Director November 26, 1997
John B. Schwemm
/s/ William H. Springer___ Director November 26, 1997
William H. Springer
______________________ Director November 26, 1997
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 3(b) By-Laws of the company, as amended and restated.
Exhibit 10(o)(ii) Walgreen Co. Nonemployee Director Stock Plan
Amendment No. 1.
Exhibit 13 Annual Report to Shareholders for the Fiscal
Year Ended August 31, 1997.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 23 Consent of Independent Public Accountants.
Exhibit 27 Financial Data Schedule.
B. DOCUMENTS INCORPORATED BY REFERENCE
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) (i) Walgreen Management Incentive Plan,
as restated.
(ii) Walgreen Management Incentive Plan Amendment
No. 1.
(d) (i) Walgreen Co. Restricted Performance Share
Plan, as amended.
(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.
(vi) Walgreen Co. 1997 Executive Deferred
Compensation/Capital Accumulation Plan
Series 1.
(vii) Walgreen Co. 1997 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.
(o) (i) Walgreen Co. Nonemployee Director Stock
Plan.
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 1,616,000,000 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 16,000,000 $.125
Junior Participating
Preferred, Series A
Preferred 4,922,821 $.125
Common Shares None 1,600,000,000 $.15625
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
$.15625 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 Issuable 0 $.125 $0
Shares in Series
Common None 492,282,144 $.15625 $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 corporation hereby submits the following:
1. The name of the corporation is Walgreen Co. (the
"Corporation").
2. The Board of Directors on July 9, 1986 duly adopted a
resolution establishing and designating one or more
series and fixing and determining the relative rights
and preferences thereof:
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, $.125 par value per
share, of the Corporation (the "Preferred Shares") was
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
4,922,821.
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,
$.15625 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) $0.125 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 $0.125 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 canceled
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 3(b)
BY-LAWS
of
WALGREEN CO.
ARTICLE I
OFFICES
SECTION 1. Principal Offices. The principal office of the
corporation shall be located in the State of Illinois and the
corporation may have such other offices, either within or without
the State of Illinois, as the business of the corporation may
require from time to time.
SECTION 2. Registered Office. The registered office of the
corporation required by The Business Corporation Act of the State
of Illinois to be maintained in the State of Illinois may be, but
need not be, identical with the principal office in the State of
Illinois, and the address of the registered office may be changed
from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. Annual Meeting. (a) The annual meeting of the
shareholders shall be held on the second Wednesday in January in
each year, or such other day in January as the Board of Directors
may designate, at a time set by the Chairman of the Board, for
the purpose of electing directors and for the transaction of such
other business as may properly come before the meeting. If the
day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day. If
the election of directors shall not be held on the day designated
herein for any annual meeting, or at any adjournment thereof, the
Board of Directors shall cause the election to be held at a
meeting of the shareholders as soon thereafter as may be
convenient.
(b) At any annual meeting of the shareholders of the
corporation, only such business shall be conducted as shall have
been brought before the meeting (i) by or at the direction of the
Board of Directors or (ii) by any shareholder of the corporation
who complies with the procedures set forth in this Section 1. For
business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice
thereof in proper written form to the Secretary of the
corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive
offices of the corporation not less than 30 days nor more than 60
days prior to the meeting; provided, however, that in the event
that less than 40 days' notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by
the shareholder to be timely must be received not later than the
close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such
public disclosure was made. To be in proper written form, a
shareholder's notice to the Secretary shall set forth in writing
as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and
address, as they appear on the corporation's books, of the
shareholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the
shareholder and (iv) any material interest of the shareholder in
such business. Notwithstanding anything in the By-laws to the
contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this
Section 1. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the
provisions of this Section 1, and, if he should so determine, he
shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
SECTION 2. Special Meeting. Special meetings of the
shareholders may be called by the Chairman of the Board, by the
President, by the Board of Directors or by the holders of not
less than one-fifth of all the outstanding shares of the
corporation.
SECTION 3. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of
Illinois, as the place of meeting for any annual meeting or for
any special meeting called by the Board of Directors. If no
designation is made, or if a special meeting be otherwise called
and the Board of Directors fails to designate the place of such
meeting, the place of such meeting shall be the registered office
of the corporation in the State of Illinois.
SECTION 4. Notice of Meetings. Written or printed notice
stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty
days before the date of the meeting or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or
exchange of assets not less than twenty days nor more than sixty
days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman of the Board, the
President, or the Secretary, or the officer or persons calling
the meeting to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to
the shareholder at his or her address as it appears on the
records of the corporation, with postage thereon prepaid.
SECTION 5. Fixing of Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors
of the corporation may fix in advance a date as the record date
for any such determination of shareholders, such date in any case
to be not more than 60 days and, for a meeting of shareholders,
not less than 10 days, or in the case of a merger, consolidation,
share exchange, dissolution or sale, lease or exchange of assets
not less than 20 days, immediately preceding such meeting. If no
record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date
on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has
been made as provided in this Section, such determination shall
apply to any adjournment thereof.
SECTION 6. Voting Lists. The officer or agent having charge of
the transfer books for shares of the corporation shall make,
within twenty days after the record date for a meeting of
shareholders or ten days before such meeting, whichever is
earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of
and the number of shares held by each, which list, for a period
of ten days prior to such meeting, shall be kept on file at the
registered office of the corporation and shall be subject to
inspection by any shareholder and to copying at the shareholder's
expense, at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share ledger
or transfer book, or a duplicate thereof kept in this State,
shall be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders.
SECTION 7. Quorum. A majority of outstanding shares entitled
to vote on a matter, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders; provided that
if less than a majority of the outstanding shares are represented
at said meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. In
no event shall a quorum consist of less than one-third of the
outstanding shares entitled to vote.
If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on a
matter shall be the act of the shareholders, unless the vote of a
greater number or voting by classes is required by The Business
Corporation Act or the Articles of Incorporation of the
corporation.
SECTION 8. Proxies. A shareholder may appoint a proxy to vote
or otherwise act for him or her by signing an appointment form
and delivering it to the person so appointed. No shareholder may
name more than three persons as proxies to attend and vote the
shareholder's shares at any such meeting. Such proxy shall be
filed with the Secretary of the corporation before or at the time
of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the
proxy. Every proxy continues in full force and effect until
revoked by the person executing it prior to the vote thereon,
except to the extent such proxy is irrevocable. Such revocation
may be effected by a writing delivered to the corporation stating
that the proxy is revoked, or by a subsequent proxy executed by,
or by attendance at the meeting and voting in person by, the
person executing the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless
of the postmark dates on the envelopes in which they are mailed.
SECTION 9. Voting of Shares. Subject to the provisions of
Section 11 of this Article, each outstanding share, regardless of
class, shall be entitled to one vote upon each matter submitted
to a vote at a meeting of shareholders.
SECTION 10. Voting of Shares by Certain Holders. Shares of the
corporation held by the corporation in a fiduciary capacity may
be voted and shall be counted in determining the total number of
outstanding shares entitled to vote at a given time.
Shares registered in the name of another corporation, domestic
or foreign, may be voted by any officer, agent, proxy or other
legal representative authorized to vote such shares under the law
of incorporation of such corporation. The corporation may treat
the president or other person holding the position of chief
executive officer of such other corporation as authorized to vote
such shares, together with any other person indicated and any
other holder of an office indicated by the corporate shareholder
to the corporation as a person or an office authorized to vote
such shares as the by-laws of such corporation may prescribe, or,
in the absence of such provision, as the board of directors of
such corporation may determine.
Shares registered in the name of a deceased person, a minor ward
or person under legal disability, may be voted by his or her
administrator, executor, or court appointed guardian, either in
person or by proxy without a transfer of such shares into the
name of such administrator, executor, or court appointed
guardian. Shares registered in the name of a trustee may be
voted by him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into
his or her name if authority so to do is contained in an
appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name
of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
SECTION 11. Cumulative Voting. In all elections for
directors, every shareholder shall have the right to vote, in
person or by proxy, the number of shares owned by such
shareholder, for as many persons as there are directors to be
elected, or to cumulate such votes and give one candidate as many
votes as shall equal the number of directors multiplied by the
number of such shares, or to distribute such cumulative votes in
any proportion among any number of candidates.
SECTION 12. Voting by Ballot. Voting on any question or in any
election may be viva voce unless the presiding officer shall
order that voting be by ballot.
SECTION 13. Adjournments. Any meeting of shareholders may be
adjourned. Notice of the adjourned meeting or of the business to
be transacted there, other than by announcement at the meeting at
which the adjournment is taken, shall not be necessary, unless
otherwise required by law. At an adjourned meeting at which a
quorum is present or represented, any business may be transacted
which could have been transacted at the meeting originally
called.
SECTION 14. Inspectors of Election. The Board of Directors, in
advance of any meeting of shareholders, may appoint one or more
persons as inspectors to act at such meeting or any adjournment
thereof. If inspectors of election are not so appointed, the
person acting as chairman at any such meeting may, and on the
request of any shareholder shall, make such appointment.
The inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the
validity and effect of proxies; count all votes and report the
results; and do such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the
shareholders.
Each report of an inspector shall be in writing and signed by
him or her or by a majority of them if there is more than one
inspector acting at such meeting. If there is more than one
inspector, the report of a majority shall be the report of the
inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
SECTION 15. Notice of Shareholder Nominees. Only persons who
are nominated in accordance with the procedures set forth in this
Section 15 shall be eligible for election at a meeting of
shareholders as directors of the corporation. Nominations of
persons for election to the Board of Directors of the corporation
may be made at a meeting of shareholders (a) by or at the
direction of the Board of Directors or (b) by any shareholder of
the corporation who is a shareholder of record at the time of
giving of notice provided for in this Section, who shall be
entitled to vote for the election of directors at the meeting and
who complies with the procedures set forth in this Section 15.
Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the corporation not less
than 30 days nor more than 60 days prior to the meeting;
provided, however, that in the event that less than 40 days'
notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business
on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or
re-election as a director, all information relating to such
person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (including, without
limitation, such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if
elected); and (b) as to the shareholder giving the notice (i) the
name and address, as they appear on the corporation's books, of
such shareholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such shareholder. At
the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish
to the Secretary of the corporation that information required to
be set forth in a shareholder's notice of nomination which
pertains to the nominee. No person shall be eligible to serve as
a Director of the corporation unless nominated in accordance with
the procedures set forth in this by-law. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 15, a shareholder shall also comply
with all applicable requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder
with respect to the matters set forth in this Section.
SECTION 16. Action by Written Consent. (a) In order that the
corporation may determine the shareholders entitled to consent to
corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be
more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any
shareholder of record seeking to have the shareholders authorize
or take corporate action by written consent shall, by written
notice to the Secretary, request the Board of Directors to fix a
record date. The Board of Directors shall promptly, but in all
events within 10 days after the date on which such a request is
received, adopt a resolution fixing the record date. If no
record date has been fixed by the Board of Directors within 10
days of the date on which such a request is received, the record
date for determining shareholders entitled to consent to
corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by applicable law,
shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its principal place of business or
to any officer or agent of the corporation having custody of the
book in which proceedings of meetings of shareholders are
recorded. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required
by applicable law, the record date for determining shareholders
entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which
the Board of Directors adopts the resolution taking such prior
action.
(b) Every written consent shall bear the date of signature of
each shareholder who signs the consent and no written consent
shall be effective to take the corporate action referred to
therein unless, within 60 days of the record date established in
accordance with paragraph (a) of this Section 16, a written
consent or consents signed by a sufficient number of holders to
take such action are delivered to the corporation in the manner
prescribed in paragraph (a) of this Section.
(c) In the event of the delivery, in the manner provided by this
Section, to the corporation of the requisite written consent or
consents to take corporate action and/or any related revocation
or revocations, the corporation shall engage nationally
recognized independent inspectors of elections for the purpose of
promptly performing a ministerial review of the validity of the
consents and revocations. For the purpose of permitting a prompt
ministerial review by the independent inspectors, no action by
written consent without a meeting shall be effective until the
earlier of (i) five business days following delivery to the
corporation of consents signed by the holders of the requisite
minimum number of votes that would be necessary to take such
action, which delivery shall be accompanied by a certification by
the shareholder of record (or his or her designee) who delivered,
in accordance with paragraph (a) above, the written notice to the
Secretary requesting the Board of Directors to fix a record date
or (ii) such date as the independent inspectors certify to the
corporation that the consents delivered to the corporation in
accordance with this Article represent at least the minimum
number of votes that would be necessary to take the corporate
action. Nothing contained in this paragraph shall in any way be
construed to suggest or imply that the Board of Directors or any
shareholder shall not be entitled to contest the validity of any
consent or revocation thereof, whether during or after such five
business day period, or to take any other action (including,
without limitation, the commencement, prosecution or defense of
any litigation with respect thereto).
ARTICLE III
DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of its
Board of Directors.
SECTION 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be not less than seven nor
more than twelve. Within the limits above specified, the number
of directors shall be determined from time to time by resolution
of the Board of Directors or by resolution of the shareholders.
Each director shall hold office until the next annual meeting of
shareholders or until his or her successor shall have been
elected. Directors need not be residents of Illinois or
shareholders of the corporation. It shall be the policy of the
corporation not to nominate as a director any person who has
reached his or her seventieth birthday.
A director may resign at any time by giving written notice to
the Board of Directors, its Chairman or to the President or
Secretary of the corporation. A resignation shall be effective
when the notice is given, unless the notice specifies a future
date.
SECTION 3. Regular Meetings. A regular annual meeting of the
Board of Directors shall be held without other notice than this
by-law, immediately after, and at the same place as, the annual
meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place, either within or without the
State of Illinois, for the holding of additional regular meetings
without other notice than such resolution; but if not so provided
then such additional regular meetings may be convened in the same
manner as provided in Section 4 of this Article in respect of
special meetings.
SECTION 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of
the Board or any two directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any
place, either within or without the State of Illinois, as the
place for holding any special meeting of the Board of Directors
called by them.
SECTION 5. Notice. Notice of any special meeting shall be
given at least one day prior thereto if notice is given
personally, at least two days prior thereto if notice is given by
telegram or by a delivery service assuring delivery within twenty-
four hours, or at least five days prior thereto if notice is
given by mail. If notice is given by telegram, such notice shall
be deemed to be delivered when the telegram, addressed to the
director at his or her business address, is delivered to the
telegraph company. If notice is given by delivery service, such
notice shall be deemed to be delivered when delivered, so
addressed, to the delivery service company. If mailed, such
notice shall be deemed to be delivered when deposited in the
United States mail addressed to the director at his or her
business address, with postage thereon prepaid. Any director may
waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice
or waiver of notice of such meetings.
SECTION 6. Quorum. A majority of the Board of Directors then
in office, but in no event less than a majority of the minimum
number of directors specified in Section 2 of this Article shall
constitute a quorum for the transaction of business at any
meeting of the Board of Directors, provided that if less than a
majority of the directors are present at said meeting, a majority
of the directors present may adjourn the meeting from time to
time without further notice.
SECTION 7. Manner of Acting. Except as provided in the
Articles of Incorporation of the corporation, the act of the
majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
SECTION 8. Vacancies. Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an
increase in the number of directors may be filled by election at
an annual meeting or at a special meeting of shareholders called
for that purpose.
SECTION 9. Presumption of Assent. A director of the
corporation who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be
conclusively presumed to have assented to the action taken unless
his or her dissent is entered in the minutes of the meeting or
unless such director shall file his or her written dissent to
such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the Secretary of the
corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in
favor of such action.
SECTION 10. Informal Action by Directors. Any action required
to be taken at a meeting of the Board of Directors, or any other
action which may be taken at a meeting of the Board of Directors,
may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by all the directors
entitled to vote with respect to the subject matter thereof.
SECTION 11. Adjournment. Any meeting of the Board of Directors
may be adjourned. Notice of the adjourned meeting or of the
business to be transacted there, other than by announcement at
the meeting at which the adjournment is taken, shall not be
necessary. At an adjourned meeting at which a quorum is present,
any business may be transacted which could have been transacted
at the meeting originally called.
SECTION 12. Directors Conflict of Interest. If a transaction
is fair to the corporation at the time it is authorized, approved
or ratified, the fact that a director of the corporation is
directly or indirectly a party to the transaction shall not be
grounds for invalidating the transaction.
SECTION 13. Compensation of Directors. By the affirmative vote
of a majority of the directors then in office, and irrespective
of any personal interest of any member of the Board of Directors,
the Board of Directors may establish reasonable compensation of
all directors for services to the corporation as directors,
officers or otherwise. No such establishment of reasonable
compensation shall be deemed a director conflict of interest.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Establishment of Committees. A majority of the
directors may create one or more committees and appoint members
of the Board of Directors to serve on the committee or
committees. Each committee shall have two or more members, who
serve at the pleasure of the Board of Directors. The Board of
Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. Any
vacancy in a committee may be filled by the Board of Directors.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors as required.
SECTION 2. Manner of Acting. A majority of any committee shall
constitute a quorum and a majority of a quorum shall be necessary
for action by any committee. A committee may act by unanimous
consent in writing without a meeting. The committee, by majority
vote of its members, shall determine the time and place of
meetings and the notice required therefor.
SECTION 3. Authority of Committees. To the extent specified by
resolution of the Board of Directors and these By-laws, each
committee may exercise the authority of the Board of Directors,
provided, however, a committee may not:
a) authorize distributions;
b) approve or recommend to shareholders any act requiring
the approval of shareholders;
c) fill vacancies on any committee;
d) elect or remove officers or fix the compensation of any
member of the committee;
e) adopt, amend or repeal these By-laws;
f) approve a plan of merger not requiring shareholder
approval;
g) authorize or approve reacquisition of shares, except
according to a general formula or method prescribed by
the Board of Directors;
h) authorize or approve the issuance or sale, or contract
for sale, of shares, or determine the designation and
relative rights, preferences, and limitations of a series
of shares, except that a committee may fix the specific
terms of the issuance or sale or contract for sale, or
the number of shares to be allocated to particular
employees under an employee benefit plan; or
i) amend, alter, repeal, or take action inconsistent with
any resolution or action of the Board of Directors when
the resolution or action of the Board of Directors
provides by its terms that it shall not be amended,
altered or repealed by action of a committee.
SECTION 4. Executive Committee. The Board of Directors may
establish an Executive Committee. The Executive Committee,
during intervals between meetings of the Board of Directors,
shall have, and may exercise, subject to the limitations
contained in Section 3 of this Article, the powers of the Board
of Directors in the management of the business and affairs of the
corporation.
SECTION 5. Compensation Committee. The Board of Directors may
establish a Compensation Committee consisting of directors who
are not otherwise employed by the corporation. The Compensation
Committee shall review, from time to time, the salaries,
compensation and employee benefits of the officers and employees
of the corporation and shall make recommendations to the Board of
Directors concerning such matters.
SECTION 6. Audit Committee. The Board of Directors shall
establish an Audit Committee consisting of directors who are not
otherwise employed by the corporation. The Audit Committee shall
review the selection and qualifications of the independent public
accountants employed by the corporation to audit the financial
statements of the corporation and the scope and adequacy of their
audits. The Audit Committee shall also consider recommendations
made by such independent public accountants, review the internal
financial audits of the corporation, and report any additions or
changes it deems advisable to the Board of Directors.
SECTION 7. Nominating and Governance Committee. The Board of
Directors may establish a Nominating and Governance Committee
consisting of directors who are not otherwise employed by the
corporation. The Nominating and Governance Committee shall
consider matters related to corporate governance, develop general
criteria regarding the selection and qualifications for members
of the Board of Directors and shall recommend candidates for
election to the Board of Directors.
SECTION 8. Finance Committee. The Board of Directors may
establish a Finance Committee. The Finance Committee shall
review major financial decisions of the corporation and shall
make recommendations to the Board of Directors concerning such
matters.
ARTICLE V
OFFICERS
SECTION 1. Number. The officers of the corporation shall be a
Chairman of the Board, a President, and such Executive or Senior
Vice Presidents and other Vice Presidents as the Board of
Directors may from time to time elect or appoint, a Treasurer, a
Controller, a General Auditor and a Secretary, and such Assistant
Treasurers, Assistant Secretaries, Assistant Controllers or other
officers as may be from time to time elected or appointed by the
Board of Directors. Any two or more offices may be held by the
same person.
SECTION 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors
at the first meeting of the Board of Directors held after each
annual meeting of shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold
office until his or her successor shall have been duly elected
and shall have qualified or until his or her death or until he or
she shall resign or shall have been removed in the manner
hereinafter provided. No officer shall be elected or re-elected
after reaching sixty-five years of age.
SECTION 3. Removal. Any officer or agent of the corporation
may be removed by the Board of Directors whenever in its judgment
the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may
be filled by the Board of Directors for the unexpired portion of
the term.
SECTION 5. Chief Executive Officer. The Chairman of the Board
may, but need not, be the Chief Executive Officer of the
corporation. The Chief Executive Officer shall determine and
administer the policies of the corporation, subject to the
instructions of the Board of Directors.
Except where, by law, the signature of some other officer or
agent of the corporation is required, the Chief Executive Officer
may sign: certificates for shares of the corporation; any deeds,
mortgages, bonds, leases concerning real and personal property
both as landlord and as tenant; contracts and other instruments
in furtherance of the business of the corporation, including
instruments of guaranty as to any of such documents which may be
executed by subsidiaries of the corporation; proxies on behalf of
the corporation with respect to the voting of any shares of stock
owned by the corporation; and assignments of shares of stock
owned by the corporation. The Chief Executive Officer shall have
the power to appoint such agents and employees as in the Chief
Executive Officer's judgment may be necessary or proper for the
transaction of the business of the corporation and to fix their
compensation, all subject to the ratification of the Board of
Directors.
The Chief Executive Officer shall submit to the Board of
Directors, prior to the date of the annual meeting of
shareholders, an annual report of the operations of the
corporation and its subsidiaries, including a balance sheet
showing the financial condition of the corporation and its
subsidiaries consolidated as at the close of such fiscal year and
statements of consolidated income and surplus. The Chief
Executive Officer shall perform such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 6. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board of Directors.
SECTION 7. President. The President shall be the Chief
Operating Officer of the corporation and shall in general be in
charge of the operations of the corporation. The President may,
but need not, be the Chief Executive Officer.
Except where, by law, the signature of some other officer or
agent of the corporation is required, the President or a Vice
President may sign: certificates for shares of the corporation;
any deeds, mortgages, bonds, leases concerning real and personal
property both as landlord and as tenant; contracts or other
instruments in furtherance of the business of the corporation,
including instruments of guaranty as to any of such documents
which may be executed by subsidiaries of the corporation; proxies
on behalf of the corporation with respect to the voting of any
shares of stock owned by the corporation; and assignments of
shares of stock owned by the corporation. The President shall
perform such other duties as may be prescribed by the Board of
Directors from time to time.
SECTION 8. The Vice Presidents. In the absence of the President
or in the event of the President's inability or refusal to act, a
Vice President, selected by the Board of Directors, shall perform
the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the
President. Each Vice President may execute documents as provided
in Section 7 of this Article and shall perform such other duties
as from time to time may be assigned to such Vice President by
the Chief Executive Officer, the President or by the Board of
Directors. The Board of Directors may designate one or more of
the Vice Presidents as Executive or Senior Vice President with
such additional duties as from time to time may be assigned by
the Chief Executive Officer, the President or by the Board of
Directors.
SECTION 9. The Treasurer. The Treasurer shall have the custody
of all of the funds and securities of the corporation. When
necessary and proper the Treasurer shall endorse, or authorize on
behalf of the corporation the endorsement of, all checks, notes
or other obligations and evidences of the payment of money,
payable to the corporation or coming into the Treasurer's
possession, and shall deposit the funds arising therefrom with
all other funds of the corporation, coming into the Treasurer's
possession, in such banks as may be selected as the depositories
of the corporation, or properly care for them in such other
manner as the Board of Directors may direct. Either alone or
jointly with the Chief Executive Officer, the President or such
other officers as may be designated by the Board of Directors,
the Treasurer shall, except as herein otherwise provided, be
authorized to sign all checks and other instruments drawn on or
payable out of the funds of the corporation, and all bills, notes
and other evidences of indebtedness of the corporation. Whenever
required by the Board of Directors to do so, the Treasurer shall
exhibit a complete and true statement of the Treasurer's cash
account and of the securities and other property in the
Treasurer's possession, custody or control. The Treasurer shall
enter, or direct or cause to be entered, regularly in books
belonging to the corporation and to be kept by the Treasurer for
such purpose, a full and accurate account of all money received
and paid by the Treasurer on account of the corporation, together
with all other business transactions. The Treasurer shall, at
all reasonable times within the hours of business, exhibit the
Treasurer's books and accounts to any director. The Treasurer
shall perform all duties which are incident to the office of the
Treasurer of a corporation, subject, however, at all times to the
direction and control of the Board of Directors. If the Board of
Directors shall so require, the Treasurer shall give bond, in
such sum and with such securities as the Board of Directors may
direct, for the faithful performance of the Treasurer's duties
and for the safe custody of the funds and property of the
corporation coming into the Treasurer's possession.
SECTION 10. The Secretary. The Secretary shall keep the
minutes of all meetings of the Board of Directors, the minutes of
all meetings of the committees of the Board of Directors, and the
minutes of all meetings of the shareholders, in books provided by
the corporation for such purposes, and shall act as Secretary at
all such meetings. The Secretary shall attend to the giving and
serving of all notices of the corporation of meetings of the
Board of Directors, committees of the Board of Directors and
shareholders. The Secretary shall prepare all lists of
shareholders and their addresses required to be prepared by the
provisions of any present or future statute of the State of
Illinois. The Secretary may sign with the Chief Executive
Officer, the President or a Vice President, in the name of the
corporation, all contracts and instruments and may affix the seal
of the corporation thereto. The Secretary shall have charge of
such books and papers as the Board of Directors may direct. The
Secretary shall have the authority to certify the By-laws,
resolutions of the Board of Directors and the committees thereof,
and other documents of the corporation as true and correct copies
thereof. The Secretary shall, in general, perform all the duties
which are incident to the office of Secretary of a corporation,
subject at all times to the direction and control of the Board of
Directors.
SECTION 11. The Controller. The Controller shall be the
principal accounting officer of the corporation and shall be in
charge of all general and cost accounting books and records of
the corporation, and shall see that all moneys due to the
corporation, all disbursements and all properties and assets are
properly accounted for. The Controller shall prepare the
corporation's balance sheets, income accounts and other financial
statements and reports, and render on a periodic basis a report
covering the operations of the corporation for the month and year
to date. The Controller shall perform all duties which are
incident to the office of the Controller of a corporation,
subject, however, at all times to the control of the Board of
Directors.
SECTION 12. General Auditor. The General Auditor shall be
responsible for the conduct of audits in order to determine that
the corporation's accounting systems of internal checks and
balances are properly designed and function so that the
corporation's assets are being adequately protected. The General
Auditor shall perform audits of any of the corporation's
operations and accounting which will permit him or her to
adequately discharge the General Auditor's responsibilities. The
General Auditor shall render findings to the General Auditor's
immediate superior and, in the event that in the General
Auditor's opinion, proper corrective action is not being taken or
the General Auditor is being denied free access to information
needed to perform the General Auditor's duties, shall have the
right, and it is the General Auditor's responsibility, to report
this to the Chief Executive Officer of the corporation or
directly to the Board of Directors.
SECTION 13. Assistant Treasurers, Assistant Secretaries and
Assistant Controllers. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine. Each
Assistant Treasurer, Assistant Secretary and Assistant
Controller, in the absence or inability or refusal to act of the
Treasurer, the Secretary or the Controller, as the case may be,
may perform the duties of the office to which he or she is an
assistant and in general shall perform such duties as shall be
assigned to him or her by the Treasurer, the Secretary or the
Controller, respectively, or by the Chief Executive Officer, the
President or the Board of Directors.
SECTION 14. Execution of Agreements. The Chief Executive
Officer, the Chairman of the Board or the President or any Vice
President, at any time and without any express authority of the
Board of Directors may sign and execute all agreements to sell,
purchase, lease or otherwise acquire stores or other property of,
in behalf of, and for the corporation. The authority herein
given by this paragraph shall not impair or restrict any
authority, expressed, implied or otherwise, herein conferred upon
any officer or officers.
SECTION 15. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors and no officer
shall be prevented from receiving such salary by reason of the
fact that such officer is also a director of the corporation.
ARTICLE VI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. Right to Indemnification. Each person who was or is
a party, or is threatened to be made a party to or called as a
witness in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative and any appeal thereof (hereinafter a
"proceeding"), by reason of the fact that he or she is, was or
agreed to become a director or officer, of the corporation or is
or was serving at the request of the corporation as a director,
officer, employee, trustee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in
an official capacity as a director, officer, employee, trustee,
fiduciary or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Illinois
Business Corporation Act, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide
broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all
expenses (including attorneys' fees and other expenses of
litigation), judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement actually and reasonably incurred
by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director,
officer, employee, trustee, fiduciary or agent and shall inure to
the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 hereof,
the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred by this
Article shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of
its final disposition, including any appeal thereof; provided
however, that, if the Illinois Business Corporation Act requires,
the payment of such expenses incurred by a director or officer in
his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person
while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced unless it
shall ultimately be determined that such director or officer is
entitled to be indemnified under this Article or otherwise. The
corporation may, by action of its Board of Directors, provide (A)
indemnification to employees and agents of the corporation or
others and (b) for such other indemnification of persons
indemnified by this Article as it deems appropriate.
SECTION 2. Right of Claimant to Bring Suit. If a claim under
Section 1 of this Article is not paid in full by the corporation
within thirty days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting claim. It
shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
corporation) that indemnification of the claimant is prohibited
by applicable law, but the burden of proving such defense shall
be on the corporation. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or
its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is proper in the circumstances, nor an actual determination by
the corporation (including its Board of Directors, independent
legal counsel, or its shareholders) that indemnification of the
claimant is prohibited by applicable law, shall be a defense to
the action or create a presumption that indemnification of the
claimant is prohibited by applicable law.
SECTION 3. Non-Exclusivity of Rights. The right to
indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in
this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision
of the corporation's Articles of Incorporation, By-laws,
agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office.
SECTION 4. Insurance. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any person who
is or was a director, officer, employee, fiduciary, trustee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership joint venture, trust or other
enterprise (including employee benefit plans) against any
liability asserted against such person and incurred by such
person in any such capacity, or arising out of his or her status
as such, whether or not the corporation would have the power to
indemnify such person against such liability under the Illinois
Business Corporation Act.
SECTION 5. Report to Shareholders. The corporation shall report
in writing to shareholders any indemnity or advanced expenses
paid to a director, officer, employee or agent with or before the
notice of the next shareholders meeting.
SECTION 6. Contractual Nature. The provisions of this Article
shall be applicable to all proceedings commenced or continuing
after its adoption, whether such arise out of events, acts or
omissions which occurred prior or subsequent to such adoption,
and shall continue as to a person who has ceased to be a
director, officer or a person serving at the request of the
corporation as a director, trustee, fiduciary, employee, agent or
officer of another corporation, partnership, joint venture, trust
or other enterprise and shall inure to the benefit of the heirs
of such person. This Article shall be deemed to be a contract
between the corporation and each person who, at any time that
this Article is in effect, serves or agrees to serve in any
capacity which entitles him to indemnification hereunder and any
repeal or other modification of this Article or any repeal or
modification of the Illinois Business Corporation Act or any
other applicable law shall not limit any rights of
indemnification for proceedings then existing or later arising
out of events, acts or omissions occurring prior to such repeal
or modification, including, without limitation, the right to
indemnification for proceedings commenced after such repeal or
modification to enforce this Article with regard to proceedings
arising out of acts, omissions or events occurring prior to such
repeal or modification.
SECTION 7. Severability. If any portion of this Article shall
be invalidated or held to be unenforceable on any ground by any
court of competent jurisdiction, the decision of which shall not
have been reversed on appeal, such invalidity or unenforceability
shall not affect the other provisions hereof, and this Article
shall be construed in all respects as if such invalid or
unenforceable provisions had been omitted therefrom.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or
confined to specific instances.
SECTION 2. Checks, Drafts, and Orders for the Payment of Money.
The Board of Directors may appoint one or more persons who may
severally be authorized by the Board of Directors to sign checks,
drafts, or orders for the payment of money and any or all of whom
may be further authorized by the Board of Directors, in its
discretion, to authorize other individuals to sign checks,
drafts, or orders for the payment of money.
SECTION 3. Deposits. The Board of Directors may appoint one or
more persons who may severally be authorized by the Board of
Directors to select and designate as a depository of and for the
moneys and funds of the corporation such bank or banks as such
person may from time to time determine; and the said person or
persons so authorized by the Board of Directors may further be
authorized severally terminate and cancel the designation of any
bank or banks as a depository of this corporation.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the
corporation may be represented by certificates signed by the
Chairman of the Board or Chief Executive Officer, the President
or a Vice President and the Secretary or an Assistant Secretary
and sealed with the seal of the corporation. Such seal may be a
facsimile. Where such certificate is countersigned by a transfer
agent other than the corporation itself or an employee of the
corporation, or by a transfer clerk and registered by a
registrar, the signatures of the Chairman of the Board or Chief
Executive Officer, the President or Vice President and the
Secretary or Assistant Secretary upon such certificate may be
facsimiles, engraved or printed. In case any officer who has
signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with
the same effect as if such officer had not ceased to be such at
the date of its issue. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the
person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the
books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate
shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in
case of a lost, destroyed or mutilated certificate a new one may
be issued therefor upon such terms and indemnity to the
corporation as the Board of Directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the
corporation shall be made only on the books of the corporation by
the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to
transfer, or by his or her attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the
corporation, and on surrender for cancellation of the certificate
for such shares. The person in whose name shares stand on the
books of the corporation shall be deemed the owner thereof for
all purposes as regards the corporation.
SECTION 3. Transfer Agent and Registrar. The Board of Directors
may from time to time appoint such Transfer Agents and Registrars
in such locations as it shall determine, and may, in its
discretion, appoint a single entity to act in the capacity of
both Transfer Agent and Registrar in any one location.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day
in September in each year and shall end on the succeeding thirty-
first day of August.
ARTICLE X
DIVIDENDS
The Board of Directors may from time to time declare and the
corporation may pay dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its
Articles of Incorporation.
ARTICLE XI
SEAL
The Board of Directors shall provide a corporate seal which
shall be in the form of a circle and shall have inscribed thereon
the name of the corporation and the words "Corporate Seal,
Illinois".
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of these By-laws or under the provisions of the
Articles of Incorporation or under the provisions of The Business
Corporation Act of the State of Illinois, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XIII
AMENDMENTS
SECTION 1. By Directors. These By-laws may be altered, amended
or repealed and new By-laws may be adopted at any meeting of the
Board of Directors of the corporation by a majority vote of the
directors present at the meeting, subject to the restrictions set
forth in Section 2 of this Article.
SECTION 2. By Shareholders. These By-laws may be altered,
amended or repealed and new By-laws may be adopted by the
shareholders at any annual meeting, or at any special meeting
called for such purpose. If such By-law so provides, a By-law
adopted by the shareholders may not be altered, amended or
repealed by the Board of Directors.
EXHIBIT 10(o)(ii)
WALGREEN CO. NONEMPLOYEE DIRECTOR STOCK PLAN
AMENDMENT NO. 1
I
Article 2 of the Plan shall be amended to add the definition
of Deferred Cash Compensation Account as follows:
"DEFERRED CASH COMPENSATION ACCOUNT" means an account
established pursuant to Section 7.5 to provide for the
deferral of the cash component of Annual Retainers,
Committee Fees, and Meeting Fees.
II
Section 7.1 of the Plan shall be amended to read as follows:
7.1 DEFERRAL OF RETAINERS, COMMITTEE FEES, AND MEETING
FEES. During the term of this Plan, any Nonemployee
Director may elect to receive all or a portion of the cash
component of his or her Annual Retainer, Committee Fees, or
Meeting Fees in the form of Deferred Stock Units or to have
such amounts placed in a Deferred Cash Compensation Account.
During the term of this Plan, any Nonemployee Director may
also elect to receive all or a portion of the share
component of his or her Annual Retainer in the form of
Deferred Stock Units. An election to receive Deferred Stock
Units or to defer amounts into the Deferred Cash
Compensation Account pursuant to this Section 7.1 shall be
subject to the provisions of the Article 7.
III
Section 7.2 of the Plan shall be amended to read as follows:
7.2 ELECTION. An election to receive all or a portion
of a Nonemployee Director's Annual Retainer, Committee Fees,
or Meeting Fees in the form of Deferred Stock Units or to
defer amounts into the Deferred Cash Compensation Account,
as provided in Section 7.1, shall be made by December 1 for
all payments to be made in the succeeding calendar year.
New Nonemployee Directors shall make their election with
respect to their initial retainer upon their original
election to the Board. Each such election may pertain to
more than one (1) calendar year of scheduled payments.
Deferral elections may be made only in ten percent (10%)
increments.
IV
Sections 7.5, 7.6, and 7.7 shall be hereby added to the Plan
as follows:
7.5 DEFERRED CASH COMPENSATION ACCOUNT. All amounts
deferred into the Deferred Cash Compensation Account in
connection with an election pursuant to Section 7.2 shall
accrue interest on a monthly basis at a monthly compounding
rate equal to one hundred twenty percent (120%) of the
applicable federal mid-term rate (as determined under
Internal Revenue Code Section 1274 (d) and the regulations
thereunder) until the Participant's termination of service
on the board.
7.6 VESTING OF DEFERRED CASH COMPENSATION ACCOUNT.
Subject to the terms of this Plan, all amounts deferred into
the Deferred Cash Compensation Account under this Article 7
shall vest one hundred percent (100%) upon the deferral of
amounts into the Deferred Cash Compensation Account. All
interest earned in the Deferred Cash Compensation Account
pursuant to Section 7.5 shall vest one hundred percent
(100%) as such interest is earned.
7.7 PAYOUT OF DEFERRED CASH COMPENSATION ACCOUNT.
Except as provided otherwise in this Plan, the payout of the
Deferred Cash Compensation Account shall be made in two (2)
equal cash payments. The first payment shall be made within
thirty (30) days following the participant's termination of
service on the Board. The second payment shall be made one
(1) year after the Participant's first payment. The second
payment shall accrue interest from the Participant's
termination of service on the Board on a monthly basis at a
monthly compounding rate equal to the prime lending rate of
interest in effect as of the first business day of that
month (as quoted by the Company's then current lending bank
financing service for commercial borrowings). The accrued
interest shall be paid with the second payment under this
Section 7.7.
V
In all other respects, except as otherwise set forth, the
Plan shall remain in force and effect.
EXHIBIT 13
<TABLE>
ELEVEN-YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
Walgreen Co. and Subsidiaries
(Dollars in Millions, except per share data)
<CAPTION>
FISCAL YEAR 1997 1996 1995 1994
<S> <C> <C> <C> <C>
NET SALES $13,363 $11,778 $10,395 $ 9,235
COSTS AND DEDUCTIONS
Cost of sales 9,682 8,515 7,482 6,615
Selling, occupancy and
administration 2,973 2,659 2,393 2,165
Other (income) expense (1) (4) (3) (4) (3)
Total Costs and Deductions 12,651 11,171 9,871 8,777
EARNINGS
Earnings before income tax
provision 712 607 524 458
Income tax provision 276 235 203 176
Net Earnings $ 436 $ 372 $ 321 $ 282
================================================================================
PER COMMON SHARE (3)
Net Earnings $ .88 $ .75 $ .65 $ .57
Dividends Declared .24 .22 .20 .17
Book Value 4.81 4.15 3.64 3.20
================================================================================
NON-CURRENT LIABILITIES
Long-term debt $ 3 $ 4 $ 2 $ 2
Deferred income taxes 113 145 142 138
Other non-current liabilities 279 260 238 214
================================================================================
ASSETS AND EQUITY
Total Assets $ 4,207 $ 3,634 $ 3,253 $ 2,873
================================================================================
Shareholders' Equity $ 2,373 $ 2,043 $ 1,793 $ 1,574
================================================================================
Return on Average Shareholders'
Equity 19.8% 19.4% 19.1% 19.1%
================================================================================
________________________________________________________________________________
<FN>
(1) Fiscal 1993 includes the $7 million costs from the early redemption of the
company's $100 million 9 1/2% sinking fund debentures, due 2016. Fiscal
1991 includes a $4 million loss from the closing of the company's Memphis,
Tennessee, distribution center. Fiscal 1989 includes a $6 million loss on
sale of manufacturing operations.
(2) Fiscal 1993 results of operations exclude the $24 million ($.05 per share)
costs from the cumulative effect of accounting changes for postretirement
benefits and income taxes.
(3) Per share data have been adjusted for two-for-one stock splits in 1997, 1995
and 1991.
</TABLE>
<TABLE>
<CAPTION>
1993(2) 1992 1991 1990 1989 1988 1987
<C> <C> <C> <C> <C> <C> <C>
$8,295 $7,475 $6,733 $6,047 $5,380 $4,884 $4,282
5,959 5,378 4,829 4,356 3,849 3,469 3,001
1,930 1,739 1,583 1,407 1,278 1,190 1,070
7 5 9 3 9 16 17
7,896 7,122 6,421 5,766 5,136 4,675 4,088
399 353 312 281 244 209 194
154 132 117 106 90 80 90
$ 245 $ 221 $ 195 $ 175 $ 154 $ 129 $ 104
=============================================================================
$ .50 $ .45 $ .39 $ .35 $ .31 $ .26 $ .21
.15 .13 .12 .10 .09 .08 .07
2.80 2.51 2.20 1.92 1.67 1.45 1.26
=============================================================================
$ 6 $ 19 $ 123 $ 147 $ 150 $ 172 $ 141
144 172 155 139 118 106 97
176 104 85 77 69 55 51
=============================================================================
$2,506 $2,347 $2,074 $1,896 $1,666 $1,501 $1,354
=============================================================================
$1,379 $1,233 $1,081 $ 947 $ 823 $ 713 $ 622
=============================================================================
18.8% 19.1% 19.2% 19.7% 20.1% 19.3% 17.6%
=============================================================================
_____________________________________________________________________________
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fiscal 1997 was the twenty-third consecutive year of record sales and
earnings. Net earnings were $436 million or $.88 per share, an increase of
17.2% from last year's earnings of $372 million or $.75 per share. Earnings
increases resulted from higher sales and improved expense ratios.
Total net sales increased by 13.5% to $13.4 billion in fiscal 1997 compared
to increases of 13.3% in 1996 and 12.6% in 1995. 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 8.1% in 1997,
8.5% in 1996, and 7.2% in 1995. New store openings accounted for 8.6% of the
sales gains in 1997 and 7.6% in 1996 and 1995. The company operated 2,358
drugstores as of August 31, 1997, compared to 2,193 a year earlier.
Prescription sales increased 18.1% in 1997, 18.0% in 1996, and 19.8% in
1995. Comparable drugstores were up 13.0% in 1997 and 1996, and 13.8% in 1995.
Prescription sales were 47.1% of total sales for fiscal 1997 compared to 45.2%
in 1996 and 43.4% in 1995. 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 27.5% of sales from 27.7%
last year and 28.0% in fiscal 1995. Prescription margins continue to decrease
as third party retail and mail order sales become a larger portion of pharmacy
sales. The company is responding to gross margin pressures by emphasizing
minimum third party profitability standards. Improved gross margins in the rest
of the store helped offset the decline.
The company uses the last-in, first-out (LIFO) method of inventory
valuation. The effective LIFO inflation rates were .82% in 1997, .68% in 1996,
and 1.29% in 1995, which resulted in charges to cost of sales of $16 million in
1997, $13 million in 1996, and $21 million in 1995. Inflation on prescription
inventory was 1.9% in 1997, 2.3% in 1996, and 2.8% in 1995.
Selling, occupancy and administration expenses were 22.2% of sales in fiscal
1997, 22.6% of sales in fiscal 1996, and 23.0% of sales in fiscal 1995. The
fiscal 1997 decrease, as a percent to sales, was caused principally by lower
advertising expenses. The fiscal 1996 decrease, as a percent to sales, was
caused by lower advertising expenses, insurance costs and improved accounts
receivable collection experience. The growth in mail order pharmacy, which has
a lower expense ratio, has also been contributing to the decreases.
Interest income was relatively constant over the three year periods.
Average net investment levels were approximately $79 million in 1997, $76
million in 1996, and $59 million in 1995.
The fiscal 1997, 1996 and 1995 effective tax rates were 38.75%.
FINANCIAL CONDITION
Cash and cash equivalents were $73 million at August 31, 1997, compared to
$9 million at August 31, 1996. 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 for fiscal 1997 was $650 million
compared to $411 million a year ago. The change between periods was principally
due to higher earnings and better inventory control which included improved
payment terms. Contributing to this improvement was the company's SIMS
inventory management system. The company's profitability is the principal
source for providing funds for expansion and remodeling programs, dividends to
shareholders and funding for various technological improvements.
Net cash used for investing activities was $486 million versus $299 million
last year. Additions to property and equipment were $485 million compared to
$364 million last year. During the year, 251 new or relocated drugstores were
opened which included four acquired locations. This compares to 210 new or
relocated drugstores opened in the same period last year. New stores are owned
or leased. There were 110 owned locations opened during the year or under
construction at August 31, 1997 versus 57 for the same period last year. The
company borrowed $19 million in fiscal 1997, compared to $82 million in fiscal
1996, from corporate-owned life insurance policies.
Capital expenditures for fiscal 1998 are expected to exceed $500 million.
The company expects to open at least 280 new stores in fiscal 1998 and 360 in
fiscal 1999. The company is continuing to relocate stores to more convenient
and profitable freestanding locations. Expectations are that 3,000 drugstores
will be operating by the year 2000. The company believes that additional
expansion across the country is still possible beyond the year 2000. This may
necessitate future long-term borrowings. Intercom Plus, an advanced pharmacy
computer and workflow system, is expected to be fully implemented in early
fiscal 1998.
Net cash used for financing activities was $100 million compared to $125
million a year ago. The company issued 1.5 million shares of authorized but
previously unissued shares to satisfy various stock option and purchase plan
requirements. This avoided purchasing shares on the open market which would
have resulted in cash outflows of approximately $40 million. At August 31,
1997, the company had $139 million in unused bank lines of credit and $100
million of unissued authorized debt securities, previously filed with the
Securities and Exchange Commission.
In September 1997, the company concluded a tax case which involved the
depreciable lives of certain assets. This resolution resulted in a fiscal 1998
first quarter payment of approximately $37 million of tax. In addition, during
the first quarter of fiscal 1998, $58 million of cash was received from the
surrender of a group of corporate-owned life insurance policies. As of August
31, 1997, the company adequately provided for the tax and related interest.
The company has been addressing computer software modifications or
replacements to enable transactions to process properly in the year 2000. All
necessary changes are expected to occur in a timely manner and the cost will not
have a significant impact on the ongoing results of operations.
In March 1997, Financial Accounting Board Statement No. 128 "Earnings Per
Share" was issued. Under this pronouncement, which must be adopted in our
fiscal 1998 second quarter, "basic earnings per share" and "diluted earnings per
share", as defined by the bulletin, will replace "primary earnings per share"
and "fully diluted earnings per share." The objective is to make the
computation more compatible with international accounting standards. The
company does not expect basic earnings per share to be materially different from
primary earnings per share.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Walgreen Co. and Subsidiaries
For the Years Ended August 31, 1997, 1996 and 1995
(Dollars in Millions, except per share data)
_______________________________________________________________________________
EARNINGS 1997 1996 1995
NET SALES $13,363 $11,778 $10,395
COSTS AND DEDUCTIONS
Cost of sales 9,682 8,515 7,482
Selling, occupancy and administration 2,973 2,659 2,393
12,655 11,174 9,875
OTHER (INCOME) EXPENSE
Interest income (6) (5) (5)
Interest expense 2 2 1
(4) (3) (4)
EARNINGS
Earnings before income tax provision 712 607 524
Income tax provision 276 235 203
Net earnings $ 436 $ 372 $ 321
===============================================================================
_______________________________________________________________________________
NET EARNINGS PER
COMMON SHARE $ .88 $ .75 $ .65
===============================================================================
_______________________________________________________________________________
RETAINED EARNINGS 1997 1996 1995
Balance, beginning of year $ 1,966 $ 1,716 $ 1,497
Net earnings 436 372 321
Cash dividends declared: $.24 per share
in 1997, $.22 in 1996 and $.20 in 1995 (118) (109) (96)
Employee stock purchase and option plans (18) (13) (6)
Balance, end of year $ 2,266 $ 1,966 $ 1,716
================================================================================
________________________________________________________________________________
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, 1997 and 1996
(Dollars in Millions)
________________________________________________________________________________
ASSETS 1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 73 $ 9
Accounts receivable 376 288
Inventories 1,733 1,632
Other current assets 144 90
Total Current Assets 2,326 2,019
NON-CURRENT ASSETS
Property and equipment, at cost, less accumulated
depreciation and amortization 1,754 1,449
Other non-current assets 127 166
TOTAL ASSETS $ 4,207 $ 3,634
================================================================================
________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 813 $ 692
Accrued expenses and other liabilities 554 467
Income taxes 72 23
Total Current Liabilities 1,439 1,182
NON-CURRENT LIABILITIES
Deferred income taxes 113 145
Other non-current liabilities 282 264
Total Non-Current Liabilities 395 409
SHAREHOLDERS' EQUITY
Preferred stock, $.125 par value; authorized
16 million shares; none issued - -
Common stock, $.15625 par value; authorized 1.6 billion
shares; issued and outstanding 493,789,966 in 1997
and 492,282,144 in 1996 77 77
Paid-in capital 30 -
Retained earnings 2,266 1,966
Total Shareholders' Equity 2,373 2,043
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,207 $ 3,634
================================================================================
________________________________________________________________________________
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, 1997, 1996 and 1995
(Dollars in Millions)
_______________________________________________________________________________
FISCAL YEAR 1997 1996 1995
CASH FLOWS FORM OPERATING ACTIVITIES
Net earnings $ 436 $ 372 $ 321
Adjustments to reconcile net earnings to net
cash provided by operating activities -
Depreciation and amortization 164 147 132
Deferred income taxes 8 3 (7)
Other 8 5 3
Changes in operating assets and
liabilities -
Trade accounts payable 121 85 73
Inventories (101) (178) (191)
Accounts receivable (74) (60) (36)
Accrued expenses and other
liabilities 73 42 42
Income taxes 12 (9) 1
Other 3 4 7
Net cash provided by operating activities 650 411 345
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (485) (364) (310)
Net (investment in) borrowing against
corporate-owned life insurance (16) 47 (34)
Disposition of property and equipment 15 18 15
Net proceeds from marketable securities - - 30
Net cash used for investing activities (486) (299) (299)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (116) (105) (93)
Cost of employee stock purchase and
option plans (18) (13) (6)
Proceeds from (purchases for) employee
stock plans 35 (7) 4
Payments of long-term obligations (1) - (7)
Net cash used for financing activities (100) (125) (102)
CHANGES IN CASH AND CASH EQUIVALENTS
Net increase (decrease) in cash and
cash equivalents 64 (13) (56)
Cash and cash equivalents at
beginning of year 9 22 78
Cash and cash equivalents at
end of year $ 73 $ 9 $ 22
===============================================================================
_______________________________________________________________________________
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, 1997, there were 2,358 retail
drugstores and two mail service facilities. Prescription sales were 47.1% of
total sales for fiscal 1997 compared to 45.2% in 1996 and 43.4% in 1995.
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. 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
$145 million and $143 million at August 31, 1997 and 1996, respectively, are
included in cash and cash equivalents as reductions of other cash balances.
FINANCIAL INSTRUMENTS
The company had approximately $38 million and $12 million of outstanding letters
of credit at August 31, 1997 and 1996, respectively, which guaranteed foreign
trade purchases. Additional outstanding letters of credit of $59 million at
August 31, 1997 and 1996, were related to insurance activities. The company
also had purchase commitments of approximately $209 million and $68 million at
August 31, 1997 and 1996, respectively, related to the purchase of store
locations. There were no investments in derivative financial instruments during
fiscal 1997 and 1996.
INVENTORIES
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market
basis. At August 31, 1997 and 1996, inventories would have been greater by
$444 million and $428 million, 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, 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 Millions):
1997 1996
Land and land improvements
Owned stores $ 217 $ 102
Distribution centers 19 18
Other locations 9 9
Buildings and building improvements
Leased stores (building improvements only) 337 321
Owned stores 261 153
Distribution centers 117 108
Other locations 41 38
Equipment
Stores 783 687
Distribution centers 162 153
Other locations 383 357
Capitalized systems development costs 154 142
Capital lease properties 19 20
2,502 2,108
Less: accumulated depreciation and amortization 748 659
$ 1,754 $ 1,449
===============================================================================
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, 1997 and 1996, were $97 million and
$98 million, respectively. Amortization of these costs were $14 million in
1997, and $11 million in both 1996 and 1995.
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 $59 million in 1997, $50 million in 1996 and
$44 million in 1995.
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 498,334,545 in 1997,
496,872,010 in 1996 and 495,054,060 in 1995. 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 $68 million in 1997,
$82 million in 1996 and $86 million in 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTEREST EXPENSE
The company capitalized less than $1 million of interest expense as part of
significant construction projects during fiscal 1997, 1996 and 1995. Interest
paid, net of amounts capitalized, was $2 million in 1997 and $3 million in both
1996 and 1995.
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, 1997, under all leases having an
initial or remaining non-cancelable term of more than one year are shown below
(In Millions):
YEAR
1998 $ 368
1999 387
2000 370
2001 355
2002 340
Later 3,568
Total minimum lease payments $ 5,388
================================================================================
The above minimum lease payments include minimum rental commitments related to
capital leases amounting to $11 million at August 31, 1997. The present value
of net minimum capital lease payments, due after 1998, 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 million on leases due in the future under
non-cancelable subleases.
Rental expense was as follows (In Millions):
1997 1996 1995
Minimum rentals $ 357 $ 318 $ 279
Contingent rentals 35 36 35
Less: Sublease rental income (3) (3) (3)
$ 389 $ 351 $ 311
================================================================================
INCOME TAXES
The provision for income taxes consists of the following (In Millions):
1997 1996 1995
Current provision -
Federal $ 228 $ 196 $ 177
State 40 36 33
268 232 210
Deferred provision -
Federal 7 3 (6)
State 1 - (1)
8 3 (7)
$ 276 $ 235 $ 203
================================================================================
The components of the deferred provision were (In Millions):
1997 1996 1995
Employee benefit plans $ (14) $ (15) $ (9)
Accelerated depreciation 9 12 10
Inventory 22 1 4
Other (9) 5 (12)
$ 8 $ 3 $ (7)
================================================================================
The deferred tax assets and liabilities included in the Consolidated Balance
Sheets consist of the following (In Millions):
1997 1996
Deferred tax assets -
Employee benefit plans $ 95 $ 83
Insurance 41 40
Accrued rent 35 28
Inventory 15 15
Other 28 26
214 192
Deferred tax liabilities -
Accelerated depreciation 225 253
Inventory 55 33
Other 9 11
289 297
Net deferred tax liabilities $ 75 $ 105
================================================================================
Income taxes paid were $243 million, $241 million and $209 million during the
fiscal years ended August 31, 1997, 1996 and 1995, 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, 1997, the company had approximately $139 million 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 Millions):
1997 1996 1995
Average outstanding during the year $ 8 $ 19 $ 6
Largest month-end balance 42 77 35
(Sept) (Nov) (Nov)
Weighted average interest rate 5.4% 5.8% 5.5%
================================================================================
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
All share data have been adjusted to reflect a two-for-one stock split
distributed to shareholders August 8, 1997. In addition, the Board of Directors
approved increases in the authorized common stock, from 800 million shares to
1.6 billion shares, and in the authorized preferred stock, from 8 million shares
to 16 million shares.
In fiscal 1997 there was an additional issuance of 1,507,822 shares causing
a $30 million increase in paid-in capital. There were no changes to the
company's common stock or paid-in capital balances in fiscal 1996 or 1995.
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 $75.00 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 $.005 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, 1997, 62,101,320 shares of common stock were reserved for
future stock issuances under the company's employee stock purchase, option and
award plans. Preferred stock of 4,937,900 shares have been reserved for
issuance upon the exercise of Preferred Share Purchase Rights.
STOCK COMPENSATION 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 the grant. Under
this Plan, options may be granted until October 9, 2006, for an aggregate of
19,200,000 shares of common stock of the company. The options granted during
fiscal 1997 and 1996 have a three-year holding period.
The Walgreen Co. Stock Purchase/Option Plan (Share Walgreens) provides for
the granting of options to purchase company common stock over a period of 10
years 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 grant. Compensation
expense related to the Plan was less than $1 million in fiscal 1997, 1996 and
1995. Options may be granted under this Plan until September 30, 2002, for an
aggregate of 20,000,000 shares of common stock of the company. The options
granted during fiscal 1997 and 1996 have a two-year holding period.
A summary of information relative to the company's stock option plans follows:
Options Outstanding Exercisable Options
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
August 31, 1994 11,311,060 $ 7.93
Granted 4,229,180 9.43
Exercised (463,588) 7.29
Canceled/Forfeited (121,032) 9.45 -
August 31, 1995 14,955,620 $ 8.36 9,372,342 $ 7.67
Granted 299,136 12.95
Exercised (758,300) 7.69
Canceled/Forfeited (42,848) 9.63 -
August 31, 1996 14,453,608 $ 8.49 10,741,596 $ 8.04
Granted 4,706,936 17.97
Exercised (2,233,992) 6.26
Canceled/Forfeited (143,636) 13.00
August 31, 1997 16,782,916 $11.40 9,874,942 $ 8.65
===============================================================================
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 8/31/97 Life Price at 8/31/97 Price
$ 3 to 5 898,828 1.84 yrs. $ 4.57 898,828 $ 4.57
6 to 10 10,905,370 5.57 9.12 8,976,114 9.06
11 to 18 4,978,718 9.06 17.61 - -
$ 3 to 18 16,782,916 6.41 $11.40 9,874,942 $ 8.65
===============================================================================
Under the Walgreen Co. 1982 Employees Stock Purchase Plan, eligible employees
may purchase company stock at 90% of the fair market value at the date of
purchase. Employees may purchase shares through cash purchases, loans or
payroll deductions up to certain limits. The aggregate number of shares for
which all participants have the right to purchase under this Plan is 32,000,000.
The Walgreen Co. Restricted Performance Share Plan provides for the
granting of up to 16,000,000 shares of common stock to certain key employees,
subject to restrictions as to continuous employment except in the case of death,
normal retirement and total and permanent disability. Restrictions generally
lapse over a four-year period from the date of grant. Compensation expense is
recognized in the year of grant. Compensation expense related to the Plan was
$5 million in fiscal 1997, and $4 million in both 1996 and 1995. The number of
shares granted was 129,459 in fiscal 1997 and 176,876 in 1996.
The company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized based on the fair value of its grants under these plans. Had
compensation costs been determined consistent with the method of FASB Statement
No. 123 for options granted in 1997 and 1996, pro forma net income for fiscal
1997 and 1996 would have been $423 million and $369 million, respectively, and
pro forma earnings per common share for fiscal 1997 and 1996 would have been
$.85 and $.74, respectively. The weighted average fair value of options granted
at market price during fiscal 1997 and 1996 was $6.65 and $4.72, respectively.
The weighted average fair value of options granted below market price during
fiscal 1997 and 1996 was $6.95 and $5.11, respectively. The
weighted average exercise price of options granted at market price during fiscal
1997 and 1996, was $16.51 and $12.34, respectively. The weighted average
exercise price of options granted below market price during fiscal 1997 and
1996, was $18.40 and $13.95, respectively.
The fair value of each option grant used in the pro forma net income and
earnings per share was determined using the Black-Scholes option pricing model
with weighted-average assumptions used for grants in both fiscal 1997 and 1996:
1997 1996
Risk-Free Interest Rate 6.29% 5.99%
Average Life of Option (years) 6 6
Volatility 20.00% 19.94%
Dividend Yield 1.07% 1.07%
POSTRETIREMENT HEALTHCARE BENEFITS
The service costs and interest cost on the accumulated postretirement healthcare
benefit obligation were $4 million and $6 million, respectively, in each of the
last three fiscal years.
The company's unfunded accumulated postretirement healthcare benefit
liability at August 31, included in the Consolidated Balance Sheets were as
follows (In Millions):
1997 1996
Retirees $ 23 $ 22
Fully eligible active plan participants 12 11
Other active plan participants 54 48
Accumulated postretirement benefit obligation 89 81
Unrecognized actuarial loss (1) -
Accrued postretirement benefit liability $ 88 $ 81
====== =====
The accumulated postretirement healthcare benefit obligation was determined
assuming the discount rate was 7.75% and the healthcare cost trend rate was
7.00% for 1997 with a gradual decline over a seven-year period to 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, 1997 by $17 million and the
service and interest cost components of the fiscal 1997 net periodic
postretirement benefit cost by $3 million. 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 Millions):
1997 1996
Accounts receivable -
Accounts receivable $ 389 $ 303
Allowances for doubtful accounts (13) (15)
$ 376 $ 288
===============================================================================
Accrued expenses and other liabilities -
Accrued salaries $ 164 $ 137
Taxes other than income taxes 82 74
Profit sharing 92 74
Other 216 182
$ 554 $ 467
==============================================================================
Other non-current liabilities -
Postretirement benefit obligation $ 85 $ 78
Insurance 72 80
Accrued rent 68 57
Other 57 49
$ 282 $ 264
==============================================================================
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, 1997 and
1996, and the related consolidated statements of earnings, retained
earnings and cash flows for each of the three years in the period ended
August 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1997 in conformity with generally accepted accounting
principles.
/s/Arthur Andersen LLP
Chicago, Illinois,
September 26, 1997
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, 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. Arthur
Andersen and the company's General Auditor 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.
/s/C. R. Walgreen III /s/R. H. Clausen
C. R. Walgreen III R. H. Clausen
Chairman of the Board Controller
and Chief Executive Officer and Chief Accounting Officer
/s/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
(Dollars in Millions, except per share data)
_________________Quarter Ended______________
Fiscal
November February May August Year
Fiscal 1997
Net sales $ 3,054 $ 3,603 $ 3,403 $ 3,303 $13,363
Gross profit 830 1,006 933 912 3,681
Net earnings 75 147 108 106 436
Net earnings per
common share $ .15 $ .30 $ .21 $ .22 $ .88
Fiscal 1996
Net sales $ 2,693 $ 3,179 $ 2,989 $ 2,917 $ 11,778
Gross profit 739 889 823 812 3,263
Net earnings 64 126 92 90 372
Net earnings per
common share $ .13 $ .25 $ .19 $ .18 $ .75
================================================================================
COMMON STOCK PRICES
Below are the New York Stock Exchange high and low for each quarter of fiscal
1997 and 1996.
________________Quarter Ended________________
Fiscal
November February May August Year
FISCAL 1997 High $21 7/16 $21 13/16 $23 5/8 $29 5/8 $29 5/8
Low 16 1/2 19 7/16 20 9/16 23 5/16 16 1/2
FISCAL 1996 High $15 5/8 $18 3/16 $17 7/16 $17 7/16 $18 3/16
Low 12 1/4 14 1/4 15 7/16 15 3/8 12 1/4
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Dividends Declared
_______________Quarter Ended_________________
Fiscal
November February May August Year
Fiscal 1997 $ .06 $ .06 $ .06 $ .06 $ .24
Fiscal 1996 $ .055 $ .055 $ .055 $ .055 $ .22
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WALGREENS NATIONWIDE
State 1997 1996 State 1997 1996
Arizona 134 128 Nevada 11 2
Arkansas 9 8 New Hampshire 9 8
California 168 139 New Jersey 38 37
Colorado 53 49 New Mexico 37 36
Connecticut 32 32 New York 30 26
Florida 395 370 North Dakota 1 1
Illinois 330 318 Ohio 61 56
Indiana 100 103 Oklahoma 22 19
Iowa 31 30 Oregon 5 1
Kansas 17 15 Pennsylvania 5 2
Kentucky 39 36 Rhode Island 12 7
Louisiana 49 48 Tennessee 81 76
Massachusetts 72 71 Texas 234 213
Michigan 28 26 Virginia 5 2
Minnesota 62 61 Washington 19 12
Mississippi 5 5 Wisconsin 115 114
Missouri 75 71 Puerto Rico 45 42
Nebraska 29 29 TOTAL 2,358 2,193
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 19
inactive subsidiaries. These 25 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.
Arthur Andersen LLP
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated September 26, 1997 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, File No. 333-19501, and
File No. 333-19467.
/s/Arthur Andersen LLP
Chicago, Illinois
November 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED AUGUST 31, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 73
<SECURITIES> 0
<RECEIVABLES> 389
<ALLOWANCES> 13
<INVENTORY> 1,733
<CURRENT-ASSETS> 2,326
<PP&E> 1,754
<DEPRECIATION> 748
<TOTAL-ASSETS> 4,207
<CURRENT-LIABILITIES> 1,439
<BONDS> 8
0
0
<COMMON> 107
<OTHER-SE> 2,266
<TOTAL-LIABILITY-AND-EQUITY> 4,207
<SALES> 13,363
<TOTAL-REVENUES> 13,363
<CGS> 9,682
<TOTAL-COSTS> 9,682
<OTHER-EXPENSES> 2,973
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 712
<INCOME-TAX> 276
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 436
<EPS-PRIMARY> 0.88<F1>
<EPS-DILUTED> 0.88<F1>
<FN>
<F1>Earnings per share data have been adjusted to reflect a two-for-one stock
split distributed to shareholders August 8, 1997. Prior Financial Data
Schedules have not restated to reflect the split.
</FN>
</TABLE>
