SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 1998.
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 Exchange
New York Stock Exchange
Preferred Share Purchase Rights Chicago Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
As of October 30, 1998, there were 498,710,881 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
$23,811,001,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended August 31,
1998, 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 1998 annual meeting of shareholders to be held January
13, 1999, are incorporated by reference into part III of Form 10-K.
PART I
Item 1. 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, 1998, had net sales of
$15.3 billion. The company served customers in 35 states and Puerto Rico
through 2,547 retail drugstores and 2 mail service facilities.
In fiscal 1998, the company opened 304 new or relocated drugstores,
completed remodelings of 47 units, and closed 113 drugstores. More than half of
the stores are now free standing as opposed to being located in strip shopping
centers. In the last five fiscal years, the company has opened 1166 new
drugstores, 1 new mail service facility, completed remodelings of 318 units and
closed 453 drugstores and one mail service facility. In addition, one major
distribution center was added during the five-year period.
The company filled 226 million prescriptions in fiscal 1998 - approximately
9 percent of the U.S. retail market. Prescription sales were 49.6% of total
sales for fiscal 1998 compared to 47.1% in 1997 and 45.2% in 1996. 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 365 new stores in fiscal 1999.
Expectations are that 3000 drugstores will be operating by the year 2000 with a
goal of 6000 by 2010. Drive-thru prescription service is now offered in nearly
1200 pharmacies and one-hour photo is available at over 90 percent of our
stores.
Effective January 13, 1999, David W. Bernauer will become the company's new
president and chief operating officer. L. Daniel Jorndt will remain the chief
executive officer and Charles R. Walgreen III continues as Chairman.
(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 1998 1997 1996
Prescription Drugs 50% 47% 45%
General Merchandise * 23 23 24
Nonprescription Drugs * 12 13 13
Cosmetics, Toiletries * 8 8 8
Liquor, Beverages 5 6 7
Tobacco Products * 2 3 3
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 note "Summary of Quarterly Results(Unaudited)" on Page 29
of the Annual Report to Shareholders for the year ended August 31,
1998 ("Annual Report"), which is incorporated herein by reference.
(vi) Working capital practices.
During fiscal 1998 the company obtained 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 1999
to support working capital needs. Long-term borrowings may be
necessary due to the planned increase in owned locations.
Due to the nature of the retail drugstore business, sales are
principally for cash. However, approximately 80% of prescription
sales are now paid by a third party versus cash at the pharmacy
counter. Customer returns are immaterial.
2
(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 1998 were as follows:
Percent
State of Sales
Florida 20%
Illinois 14
Texas 8
Arizona 7
California 7
Wisconsin 5
29 other states and Puerto Rico 39
100%
(xi) Research and development activities.
The company does not engage in any material research
activities.
(xii) Environmental disclosures.
Federal, state and local environmental protection
requirements have no material effect upon capital expenditures,
earnings or competitive position of the company.
(xiii)Number of employees.
The company employs approximately 90,000 persons, about
30,000 of whom are part-time employees working less than 30 hours
per week.
(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.
3
Cautionary Note Regarding Forward-Looking Statements
Certain information in this annual report, as well as in other public
filings, press releases and oral statements made by our representatives, is
forward-looking information based on current expectations and plans that involve
risks and uncertainties. Forward-looking information includes statements
concerning pharmacy sales trends, prescription margins, number of new store
openings, the level of capital expenditures and the company's success in
addressing Year 2000 issues; as well as those that include or are preceded by
the words "expects,""estimates,""believes" or similar language. For such
statements, we claim the protection of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
The following factors, in addition to those discussed elsewhere in this
annual report for the fiscal year ended August 31, 1998, could cause results to
differ materially from management expectations as projected in such forward-
looking statements: changes in economic conditions generally or in the markets
served by the company; consumer preferences and spending patterns; competition
from other drugstore chains, supermarkets, other retailers and mail order
companies; changes in state or federal legislation or regulations; the efforts
of third party payers to reduce prescription drug costs; the success of planned
advertising and merchandising strategies; the availability and cost of real
estate and construction; accounting policies and practices; the company's
ability to hire and retain pharmacists and other store and management personnel;
the company's relationships with its suppliers; the ability of the company, its
vendors and others to manage Year 2000 issues; the company's ability to
successfully implement new computer systems and technology; and adverse
determinations with respect to litigation or other claims. The company assumes
no obligation to update its forward-looking statements to reflect subsequent
events or circumstances.
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 12% of the retail stores open at August 31, 1998. 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 relocating existing stores. Net selling space of drugstores was
increased from 23.9 million square feet at August 31, 1997, to 26.0 million
square feet at August 31, 1998. 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
distribution centers with a total of approximately 3,900,000 square feet of
space, of which 2,800,000 square feet is owned. The remaining space is leased
with an option to buy. All warehouses are served by modern distribution 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. The company completed a major addition to its
Windsor, Wisconsin, distribution center in 1998, nearly doubling the facility to
800,000 square feet. Similar work is under way in the Mount Vernon, Illinois,
center. During the next decade, facilities in Pennsylvania, Arizona and
California will be expanded and new, much larger distribution centers will be
built in Florida and Texas. Studies are ongoing to determine where and when
distribution space will be added.
4
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
On June 21, 1996, the company was served with an action entitled State of
California, ex rel. Louis H. Mueller vs. Walgreen Corporation, Case No. 976292,
which was filed in Superior Court of the State of California, County of San
Francisco. The plaintiff alleges that on occasion Walgreens has in stock an
insufficient amount of a drug to completely fill a prescription for a California
Medical Assistance Program ("Medi-Cal") patient. In those instances, Medi-Cal
is billed for the full prescription, and the customer is requested to return to
the store at a later date for the balance of the prescription. The plaintiff
further alleges that in cases where the patient does not return for the
remainder of the prescription, Medi-Cal is not refunded for the undispensed
portion. The case was dismissed upon company's motion for judgment on the
pleadings, and the order dismissing the case is presently on appeal.
On April 17, 1997, the company was served with an action entitled State of
Illinois, ex rel. Louis H. Mueller vs. Walgreen Corporation, Case No. 96L02373,
which was filed in the Circuit Court of Cook County, Illinois. On November 24,
1998, the company was served with an action entitled United States ex rel. Louis
H. Mueller vs. Walgreen Corporation, Case No. 96-84-Civ-T-23E, which was filed
in federal court in Tampa, Florida. The allegations contained in these
complaints are the same as those contained in the dismissed California action.
These complaints seek treble damages, as well as the imposition of civil
monetary penalties. While the total dollar amount of damages and penalties
sought is material, based upon an internal investigation conducted by the
company, management is of the opinion that, although the ultimate disposition of
these suits cannot be forecast with certainty, this litigation should not have a
material adverse effect on the company's consolidated financial position or
results of operations.
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.
5
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to each executive officer
of the company as of August 31, 1998:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
L. Daniel Jorndt 57 President, Chief Executive
Chief Executive Officer since Officer and Director
January 1998
President since February 1990
Director since January 1990
Vernon A. Brunner 58 Executive Vice President
Executive Vice President since
February 1990
Glenn S. Kraiss 65 Executive Vice President
Executive Vice President since
February 1990
David W. Bernauer 54 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 50 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 57 Senior Vice President
Senior Vice President since July 1991
William A. Shiel 47 Senior Vice President
Senior Vice President since July 1993
Robert C. Atlas 63 Vice President
Vice President since September 1987
W. Lynn Earnest 55 Vice President
Vice President since July 1992
Treasurer July 1992 to February 1996
Robert H. Halaska 58 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 56 Vice President
Vice President since September 1987
J. Randolph Lewis 48 Vice President
Vice President since March 1996
Divisional Vice President, Logistics
and Planning
September 1992 to February 1996
6
EXECUTIVE OFFICERS OF THE REGISTRANT - continued:
NAME AND BUSINESS EXPERIENCE AGE OFFICE HELD
Julian A. Oettinger 59 Vice President,
Vice President, Secretary and Secretary and
General Counsel since January 1989 General Counsel
William M. Rudolphsen 43 Controller
Controller since January 1998
Director of Accounting
September 1995 to December 1997
Accounting Manager
June 1988 to August 1995
Jeffrey A. Rein 46 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.
7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The company's common stock is traded on the New York and Chicago Stock
Exchanges under the symbol WAG. As of October 30, 1998 there were 64,476
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
during the two years ended August 31, 1998, are incorporated herein by reference
to the note "Common Stock Prices" on page 29 of the Annual Report.
The range of the company's cash dividends per common share during the two
years ended August 31, 1998, are as follows:
Quarter Ended 1998 1997
November $.0625 $.06
February .0625 .06
May .0625 .06
August .0625 .06
Fiscal Year $.25 $.24
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 7a. Qualitative and Quantitative Disclosure about Market Risk
Management does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments that would require
disclosure under this item.
Item 8. Financial Statements and Supplementary Data
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
8
PART III
The information required for Items 10, 11, 12 and 13, 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
Names and ages of Director nominees,
their principal occupations and
other information
Securities Ownership of Directors and Executive
Officers
Executive Compensation
Certain Relationships
9
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 report
of independent public accountants appearing in the Annual Report are
incorporated herein by reference.
Annual Report
Page Number
Consolidated Statements of Earnings and Shareholders' 22
Equity for the years ended August 31, 1998,
1997 and 1996
Consolidated Balance Sheets at August 31, 1998 and 1997 23
Consolidated Statements of Cash Flows 24
for the years ended August 31, 1998, 1997 and 1996
Statement of Major Accounting Policies 25 - 26
Notes to Consolidated Financial Statements 26 - 29
Report of Independent Public Accountants 30
Walgreens Nationwide 32
(2) The following financial statement schedule and related report of
independent public accountants are included herein.
10-K
Page Number
Schedule II Valuation and Qualifying Accounts 15
Supplemental Report of Independent Public Accountants 16
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 of its
subsidiaries are included in the consolidated financial statements.
(3) Exhibits 10(a) through 10(p) 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 that ended
August 31, 1998.
10
(c) Exhibits
3. (a) Articles of Incorporation of the company, as amended, filed
with the Securities and Exchange Commission as Exhibit 3(a)
to the company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1997, and incorporated by reference
herein.
(b) By-Laws of the company, as amended and restated effective as
of October 14, 1998.
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.
(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.
_______________________________________________________________________________
See Notes on page 14.
11
(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)
(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.
_______________________________________________________________________________
See Notes on page 14.
12
(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 (File No. 1-604),
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), filed
with the Securities and Exchange Commission as Exhibit
10(o)(ii) to the company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1997, and
incorporated herein.
(iii) Walgreen Co. Nonemployee Director Stock Plan Amendment
No. 2 (effective September 1, 1998).
(p) Agreement dated February 3, 1998, by and between Walgreen Co.
and Charles R. Walgreen III (for consulting services), 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 May 31, 1998, and incorporated by reference
herein.
11. The required information for this Exhibit is contained in the
Consolidated Statements of Earnings and Shareholders Equity for
the years ended August 31, 1998, 1997 and 1996 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).
_______________________________________________________________________________
See Notes on page 14.
13
13. Annual Report to shareholders for the fiscal year ended August 31,
1998. 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.
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.
14
WALGREEN CO. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
(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, 1998 $ 13 $ 17 $ (19) $ 11
==== ==== ====== ====
Year ended August 31, 1997 $ 14 $ 14 $ (15) $ 13
==== ==== ====== ====
Year ended August 31, 1996 $ 25 $ 2 $ (13) $ 14
==== ==== ====== ====
15
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 25, 1998. 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 25, 1998
16
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 25, 1998
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 November 25, 1998
C. R. Walgreen III and Director
/s/ L. D. Jorndt President, Chief Executive November 25, 1998
L. D. Jorndt Officer and Director
/s/ William M. Rudolphsen Controller November 25, 1998
William M. Rudolphsen
/s/ William C. Foote Director November 25, 1998
William C. Foote
James J. Howard Director November 25, 1998
/s/ C. D. Hunter Director November 25, 1998
C. D. Hunter
/s/ Cordell Reed Director November 25, 1998
Cordell Reed
/s/ John B. Schwemm Director November 25, 1998
John B. Schwemm
William H. Springer Director November 25, 1998
/s/ Marilou M. von Ferstel Director November 25, 1998
Marilou M. von Ferstel
17
INDEX TO EXHIBITS
A. DOCUMENTS FILED WITH THIS REPORT
Exhibit 3(b) By-Laws of the company, as amended and restated.
Exhibit 10(o)(iii) Walgreen Co. Nonemployee Director Stock Plan
Amendment No. 2.
Exhibit 13 Annual Report to Shareholders for the Fiscal
Year Ended August 31, 1998.
Exhibit 21 Subsidiaries of the Registrant.
Exhibit 23 Consent of Independent Public Accountants.
Exhibit 27 Financial Data Schedule.
B. DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 3(a) Articles of Incorporation of the company, as amended
Exhibit 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) Rights Agreement dated as of July 10, 1996,
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) 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.
(ii) Walgreen Co. Nonemployee Director Stock
Plan Amendment No. 1.
(p) Consulting Agreement between Walgreen Co.
and Charles R. Walgreen III.