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Walgreen Company 10-K 2006 Documents found in this filing:United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-K
For
the fiscal year ended August 31, 2006.
For
the
Transition Period From ____________ to ___________
Commission
file number 1-604.
Registrant's
telephone number, including area code: (847)
914-2500
Securities
registered pursuant to Section 12(b) of the Act:
Securities
registered pursuant to section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x No
o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed 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
o
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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o No
x
As
of
February 28, 2006, the aggregate market value of Walgreen Co. common stock,
par
value $.078125 per share, held by non-affiliates (based upon the closing
transaction price on the New York Stock Exchange) was approximately
$45,061,959,000. As of October 31, 2006, there were 1,003,442,336 shares of
Walgreen Co. common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Annual Report to Shareholders for the year ended August 31, 2006, 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
2006 annual meeting of shareholders to be held January 10, 2007, are
incorporated by reference into part III of Form 10-K.
PART
I
Walgreen
Co. (The "company" or "Walgreens") was incorporated as an Illinois corporation
in 1909 as a successor to a business founded in 1901. Walgreens is the nation's
largest drugstore chain (based on sales) and recorded its 32nd
year of
consecutive sales and earnings growth. During the year, the company opened
or
acquired 570 stores for a net increase of 476 stores after relocations and
closings. The total number of stores at August 31, 2006 was 5,461 located in
47
states and Puerto Rico. Aggressive growth will continue as the company
anticipates operating more than 7,000 stores by 2010.
Walgreens
is committed to organic growth but carefully considers unique acquisition
opportunities when they are a good fit with the existing store base. In 2006,
for example, the company merged with 76 Happy Harry's stores, primarily in
Delaware.
The
company's managed care division, Walgreens Health Services, continues to grow
organically, as well as through acquisitions. Three recent acquisitions include
Schraft's A Specialty Pharmacy, for fertility drugs, Medmark Inc., a specialty
pharmacy business and SeniorMed LLC, which supplies medications to assisted
living and long-term care institutions.
To
support store expansion, the company opened four additional distribution centers
in the past five years, the most recent in Moreno Valley, California in fiscal
2004. These centers are 20% more productive than our older distribution centers.
The first of a new-generation of distribution centers is scheduled to open
in
South Carolina in fiscal 2007. This center is expected to provide another 20%
productivity improvement. A second new-generation center in Connecticut is
planned to open in fiscal 2009.
Prescription
sales continue to become a larger portion of the company's business. This year
prescriptions accounted for 64.3% of sales compared to 63.7% last year. Third
party sales, where reimbursement is received from managed care organizations,
government and private insurance, were 93.1% of prescription sales compared
to
92.7% a year ago. Overall, Walgreens filled 529 million prescriptions in 2006,
an increase of 8.1% from the previous year.
Walgreens
pharmacy sales trends are expected to continue to grow due, in part, to the
aging population, the introduction of lower priced generics and the continued
development of innovative drugs that improve quality of life and control
healthcare costs. Also, the increase in generic introductions continues to
boost
the number of prescriptions filled. Although generics reduce sales dollars,
they
save both patients and payors money and generally offer higher gross profit
than
brand name drugs.
The
company has garnered a larger share of senior patients from the Medicare Part
D
prescription drug benefit that rolled out on January 1, 2006. Of the Medicare
Part D prescriptions filled in the first eight months of calendar 2006, more
than 35% were for new patients introduced to Walgreens umbrella of pharmacy
services for the first time.
As
of
fiscal year-end 2006, 220 employers and managed care plans offer Advantage90,
a
90-day retail prescription option to mandatory mail programs, to a total of
6.5
million members.
Photofinishing
continued to contribute to gross margins for general merchandise in 2006, as
the
company expanded its digital photo offerings. New online digital photo services
introduced in fiscal 2006 increased sales by 58%. Walgreens has also initiated
a
printer cartridge refill program in stores.
Walgreens
strong name recognition continues to drive private brand sales, which are now
17% of the company's front-end business and 46% of all private brand sales
in
U.S. chain drugstores.
-2-
During
fiscal 2006, Walgreens' market share in 58 of the top 60 front-end categories
increased, as compared to all food, drug and mass merchandise competitors.
Today, 131.8 million people live within two miles of a Walgreens and 4.7
million
shoppers walk into a Walgreens store daily.
Walgreens
plans to increase business by investing in prime locations, new technology
and
customer service initiatives in fiscal 2007.
The
company's primary business is the operation of retail drugstores.
The
drugstores are engaged in the retail sale of prescription and non-prescription
drugs and general merchandise. General merchandise includes, among other things,
beauty care, personal care, household items, candy, photofinishing, greeting
cards, seasonal items and convenience foods. Customers can have prescriptions
filled at the drugstore counter as well as through the mail, by telephone and
on
the Internet.
The
estimated contributions of various product classes to sales for each of the
last
three fiscal years are as follows:
Not
applicable.
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.
Walgreens
markets products under various trademarks, trade dress and trade names and
holds
assorted business licenses (pharmacy, occupational, liquor, etc.) having various
lives, which are necessary for the normal operation of business. The company
also has filed various patent applications relating to its business and
products, six of which have been issued.
-3-
The
business is seasonal in nature, with Christmas generating a higher proportion
of
front-end sales and earnings than other periods. Both prescription and
non-prescription drug sales are affected by the timing and severity of the
cold/flu season. See the note "Summary of Quarterly Results (Unaudited)"
on page
31 of the Annual Report to Shareholders for the year ended August 31, 2006
("2006 Annual Report"), which note is incorporated herein by
reference.
The
company generally finances its inventory and expansion needs with internally
generated funds. See the note "Short-Term Borrowings" on page 29 and
"Management's Discussion and Analysis of Financial Condition" on pages 20
through 22 of the 2006 Annual Report, which sections are incorporated herein
by
reference. Short-term borrowings are not expected in fiscal 2007.
Due
to
the nature of the retail drugstore business 93.1% of all prescription sales
are
now covered by third party payors. Prescription sales represent 64.3% of total
store sales. The remainder of store sales are principally for cash, credit
and
debit cards. Customer returns are immaterial.
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 sales.
Not
applicable.
The
company fills prescriptions for many state public assistance plans. Revenues
from all such plans are approximately 6.5% of total sales.
The
drug
store industry is highly competitive. As a volume leader in the retail drug
industry, Walgreens competes with various retailers, including chain and
independent drugstores, mail order prescription providers, grocery stores,
mass
merchants and dollar stores. Competition remained keen during the fiscal year
with the company competing on the basis of service, convenience, variety and
price. The company's geographic dispersion tends to offset the impact of
temporary economic and competitive conditions in individual markets. The number
and location of the company's drugstores appear in the listing of stores by
state on the back cover of the 2006 Annual Report, which section is incorporated
herein by reference.
The
company does not engage in any material research activities.
-4-
Federal,
state and local environmental protection requirements have no material effect
upon capital expenditures, earnings or the competitive position of the
company.
The
company employs approximately 195,000 persons, about 52,800 of whom are
part-time employees working less than 30 hours per week.
All
the
company sales occurred within the continental United States and Puerto Rico.
There are no export sales.
The
company maintains a website at investor.walgreens.com. The company makes copies
of its Annual Reports on Form 10-K, quarterly reports on Form 10-Q, Current
Reports on Form 8-K and any amendments to those reports filed with or furnished
to the SEC available to investors on or through its website free of charge
as
soon as reasonably practicable after the company electronically files them
with
or furnishes them to the SEC. The contents of the company's website are not,
however, a part of this report. In addition, charters of all committees of
the
company's Board of Directors, as well as the company's Corporate Governance
Guidelines and Ethics Policy Statement, are available on the company's website
at investor.walgreens.com or, upon written request, in printed hardcopy form.
Written requests should be sent to Walgreen Co., Attention: Shareholder
Relations, Mail Stop #2261, 200 Wilmot Road, Deerfield, Illinois 60015. Changes
to or waivers, if any, of the company's Ethics Policy Statement for directors
and executive officers would be promptly disclosed on the company's
website.
The
company has also adopted a Code of Ethics for Financial Executives. This Code
applies to and has been signed by the Chief Executive Officer, the Chief
Financial Officer and the Controller. The full text of the Code of Ethics for
Financial Executives is available at the company's website,
investor.walgreens.com. Changes to or waivers, if any, of the company's Code
of
Ethics for Financial Executives would be promptly disclosed on the company's
website.
Cautionary
Note Regarding Forward Looking Statements
Certain
information in this annual report, as well as in other public filings, the
company website, 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 and location
of
new store openings, outcomes of litigation, the level of capital expenditures,
demographic trends; as well as those that include or are preceded by the words
"expects," "estimates," "believes," "plans," "anticipates" or similar language.
For such statements, we claim the protection of the safe harbor provisions
of
the Private Securities Litigation Reform Act of 1995.
Forward-looking
statements may involve risks and uncertainties, known or unknown to the company,
that could cause results to differ materially from management expectations
as
projected in such forward-looking statements. These risks and uncertainties
are
discussed in Item 1A below. Unless otherwise required by applicable securities
laws, the company assumes no obligation to update its forward-looking statements
to reflect subsequent events or circumstances.
-5-
Item
1A. Risk
Factors
The
risks
described below could materially and adversely affect our business, financial
condition and results of operations. These risks are not the only risks that
we
face. Our business operations could also be affected by additional factors
that
are not presently known to us or that we currently consider to be immaterial
to
our operations.
The
retail drug store and pharmacy benefit services industries are highly
competitive and further increases in competition could adversely affect us.
We
face
intense competition with local, regional and national companies, including
other
drug store chains, independent drug stores, mail-order prescription providers
and various other retailers such as grocery stores, convenience stores, mass
merchants and dollar stores, many of which are aggressively expanding in markets
we serve. In the pharmacy benefit services industry, our competitors include
large national and regional pharmacy benefit managers and insurance companies
and managed care providers, some of which are owned by or have affiliations
with
our retail drug store competitors. As competition increases in the markets
in
which we operate, a significant increase in general pricing pressures could
occur, which could require us to reevaluate our pricing structures to remain
competitive. Our failure to reduce prices could result in decreased revenue,
and
reducing prices without also reducing costs could negatively affect profits.
Reductions in third-party reimbursement levels, from private or government plans, for prescription drugs could reduce our margin on pharmacy sales and could have a significant effect on our retail drug store profits. The
continued efforts of health maintenance organizations, managed care
organizations, pharmacy benefit management companies, government entities,
and
other third-party payors to reduce prescription drug costs and pharmacy
reimbursement rates may impact our profitability. On February 8, 2006, the
President signed into law the Deficit Reduction Act of 2005, which seeks to
reduce federal spending by altering the Medicaid reimbursement formula for
multi-source (i.e., generic) drugs. These changes are expected to result in
reduced Medicaid reimbursement rates for retail pharmacies. In addition, the
President’s proposed budget for fiscal year 2007 contains further reductions in
the Medicaid reimbursement formula for multi-source drugs. We cannot determine
the impact at this time. Reduced reimbursement rates could adversely affect
our
revenues and profits.
We
are subject to governmental regulations, procedures and requirements. A
significant change in, or noncompliance with, these regulations could have
a
material adverse effect on profitability.
Our
retail drug store and pharmacy benefit services businesses are subject to
numerous federal, state and local regulations. Changes in these regulations
may
require extensive system and operating changes that may be difficult to
implement. Untimely compliance or noncompliance with applicable regulations
could result in the imposition of civil and criminal penalties that could
adversely affect the continued operation of our business, including: suspension
of payments from government programs; loss of required government
certifications; loss of authorizations to participate in or exclusion from
government reimbursement programs, such as the Medicare and Medicaid programs;
loss of licenses; or significant fines or monetary penalties, and could
adversely affect the continued operation of our business. The
regulations to which we are subject include, but are not limited to: federal,
state and local registration and regulation of pharmacies; applicable Medicare
and Medicaid regulations; the Health Insurance Portability and Accountability
Act, or HIPAA; accounting standards; tax laws and regulations; laws and
regulations relating to the protection of the environment and health and safety
matters, including those governing exposure to, and the management and disposal
of, hazardous substances; regulations of the U.S. Food and Drug Administration,
the U.S. Federal Trade Commission, the Drug Enforcement Administration, and
the
Consumer Product Safety Commission, as well as state regulatory authorities,
governing the sale, advertisement and promotion of products we sell;
anti-kickback laws; false claims laws; and federal and state laws governing
the
practice of the profession of pharmacy. Furthermore, the frequency and rate
of
FDA approval of new brand name and generic prescription drugs or of additional
existing prescription drugs for over-the-counter sales could have an impact
on
our revenues and profitability.
-6-
Our
ability to hire and retain pharmacy personnel is important to the continued
success of our business.
As
our
business expands, we believe that our future success will depend greatly
on our
continued ability to attract and retain skilled and qualified pharmacists.
The
retail drug store industry is experiencing an ongoing shortage of licensed
pharmacists. This has resulted in continued upward pressure on pharmacist
compensation packages. Although we generally have been able to meet our
pharmacist staffing requirements in the past, any future inability to do
so
could limit our ability to offer extended pharmacy hours and negatively impact
our revenue and our ability to deliver high levels of customer service.
Should
a product liability issue or personal injury issue arise, inadequate product
or
other liability insurance coverage or our inability to maintain such insurance
may result in a material adverse effect on our business and financial condition.
Products
that we sell could become subject to contamination, product tampering,
mislabeling or other damage. In addition, errors in the dispensing and packaging
of pharmaceuticals could lead to serious injury. Product liability or personal
injury claims may be asserted against us with respect to any of the products
or
pharmaceuticals we sell or services we provide. Should a product or other
liability issue arise, the coverage limits under our insurance programs and
the
indemnification amounts available to us may not be adequate to protect us
against claims. We also may not be able to maintain this insurance on acceptable
terms in the future. Damage to our reputation in the event of a product
liability or personal injury issue or judgment against us or a product recall
could have an adverse effect on our business, financial condition or results
of
operations.
Our
ability to grow our business may be constrained by our inability to find
suitable new store locations at acceptable prices or by the expiration of our
current leases.
Our
ability to grow our business may be constrained if suitable new store locations
cannot be identified with lease terms or purchase prices that are acceptable
to
us. We compete with other retailers and businesses for suitable locations for
our stores. Local land use and other regulations applicable to the types of
stores we desire to construct may impact our ability to find suitable locations
and influence the cost of constructing our stores. The expiration of leases
at
existing store locations may adversely affect us if the renewal terms of those
leases are unacceptable to us and we are forced to close or relocate stores.
Further, changing local demographics at existing store locations may adversely
affect revenue and profitability levels at those stores.
Changes
in economic conditions could adversely affect consumer buying practices and
reduce our revenues and profitability.
Our
performance may be negatively influenced by changes in national, regional or
local economic conditions and consumer confidence. External factors that affect
consumer confidence and over which we exercise no influence include unemployment
rates, levels of personal disposable income, national, regional or local
economic conditions, the introduction of new merchandise or brand and generic
prescription drugs, and acts of war or terrorism. Changes in economic conditions
and consumer confidence could adversely affect consumer preferences, purchasing
power and spending patterns. A decrease in overall consumer spending as a result
of changes in economic conditions could adversely affect our front-end sales.
Profit margins are greater on front-end sales than on pharmacy sales, and any
decrease in sales of front-end products would have a negative impact on our
profitability. Acts of war or terrorism may cause damage to our facilities,
disrupt the supply of the products and services we offer in our stores or
adversely impact consumer demand. All these factors could impact our revenues,
operating results and financial condition.
There
are a number of business risks which could adversely affect our financial
results.
Our
success depends on our ability to establish effective advertising, marketing
and
promotional programs. If we are unsuccessful in our advertising and
merchandising strategies, sales could be negatively affected. Our success also
depends on our continued ability to attract and retain store and management
personnel, and the loss of key personnel could have an adverse effect on the
results of our operations, financial condition or cash flow. We also may not
be
able to successfully and timely implement new computer systems and technology,
or may experience system disruptions or delays, which could adversely impact
our
operations and our ability to attract and retain customers. Furthermore, the
products we sell are sourced from a wide variety of domestic and international
vendors, and any future inability to find qualified vendors and access products
in a timely and efficient manner could adversely impact our business.
-7-
Item
1B. Unresolved
Staff Comments
There
are
no unresolved staff comments outstanding with the Securities and Exchange
Commission at this time.
The
number and location of the company's drugstores appear in the listing of stores
by state on the back cover of the 2006 Annual Report, which section is
incorporated herein by reference. Most of the company's drugstores are leased.
The leases are for various terms and periods. See the caption, "Leases" on
page
28 of the 2006 Annual Report, which section is incorporated herein by reference.
The company owns approximately 18% of the retail stores open at August 31,
2006.
The company has an aggressive expansion program of adding new stores and
remodeling and relocating existing stores. Net retail selling space was
increased from 55.2 million square feet at August 31, 2005, to 60.6 million
square feet at August 31, 2006. Approximately 44.3% of company stores have
been
opened or remodeled during the past five years.
The
company's retail drugstore operations are supported
by thirteen major distribution centers with a total of approximately 8.1 million
square feet of space in all distribution centers, of which 6.3 million square
feet is owned. The remaining space is leased. All distribution centers are
served by modern 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. Two new distribution centers
are planned; Anderson, South Carolina which is projected to open in fiscal
2007
and Windsor, Connecticut which is scheduled to open in fiscal 2009.
There
are
seventeen principal office facilities containing approximately 1.9 million
square feet of which approximately 1.7 million square feet is owned and the
remainder is leased. The company operates three mail service facilities
containing approximately 252,000 square feet of which approximately 133,000
square feet is owned and the remainder is leased.
The
company also owns 17 strip shopping malls containing approximately 605,000
square feet of which approximately 442,000 square feet is leased to
others.
The
information in response to this item is incorporated herein by reference to
the
caption "Contingencies" on page 29 of the 2006 Annual Report.
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year.
-8-
EXECUTIVE
OFFICERS OF THE REGISTRANT
The
following information is furnished with respect to each executive officer of
the
company as of November 1, 2006:
-9-
-10-
*
Kevin
P. Walgreen is the son of Charles R. Walgreen III, who is a director of the
company.
-11-
PART
II
The
company's common stock is listed on the New York Stock Exchange, Chicago Stock
Exchange and The Nasdaq Stock Market LLC under the symbol WAG. As of October
31,
2006 there were approximately 752,000 recordholders of company common
stock.
The
range
of the sales prices of the company's common stock by quarters during the two
years ended August 31, 2006, are incorporated herein by reference to the note
"Common Stock Prices" on page 31 of the 2006 Annual Report.
The
company's cash dividends per common share during the two fiscal years ended
August 31, are as follows:
The
following table provides information about purchases by the company during
the
quarter ended August 31, 2006 of equity securities that are registered by the
company pursuant to Section 12 of the Exchange Act:
(1)
The
company repurchased an aggregate of 2,075,000 shares of its common stock in
open-market transactions to satisfy the requirements of the company's employee
stock purchase and option plans, as well as the company's Nonemployee Director
Stock Plan. These share repurchases were not made pursuant to a publicly
announced repurchase plan or program.
(2)
On
July 14, 2004, the Board of Directors approved a stock repurchase program,
pursuant to which up to $1 billion of the company's common stock may be
repurchased. This program was announced in the company's Current Report on
Form
8-K, which was filed on July 15, 2004. The total remaining authorization under
the repurchase program was $343,226,823 as of August 31, 2006. The
expiration date of the repurchase program is July 13, 2008.
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 2006 Annual Report. -12-
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 through 22 of the 2006 Annual
Report.
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.
See
Item
15.
None
Based
on
their evaluation as of August 31, 2006 pursuant to Exchange Act Rule 13a-15(b),
the company's management, including its Chief Executive Officer and Chief
Financial Officer, believe the company's disclosure controls and procedures
(as
defined in Exchange Act Rule 13a-15(e)) are effective.
Management's
report on internal control and the attestation report of Deloitte & Touche
LLP, the company's independent registered public accounting firm, on
management's assessment of internal control over financial reporting are
included in our Annual Report to Shareholders for the year ended August 31,
2006
and are incorporated in this Item 9A by reference. Our Annual Report to
Shareholders is included as an Exhibit to this Annual Report on Form
10-K.
In
connection with the evaluation pursuant to Exchange Act Rule 13a-15(d) of the
company's internal control over financial reporting (as defined in Exchange
Act
Rule 13a-15(f)) by the company's management, including its Chief Executive
Officer and Chief Financial Officer, no changes during the quarter ended August
31, 2006 were identified that have materially affected, or are reasonably likely
to materially affect, the company's internal control over financial
reporting. -13-
PART
III
The
information required for Items 10, 11, 12, 13 and 14, 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
Information
Concerning Corporate Governance, the Board of Directors and its
Committees
Securities
Ownership of Certain Beneficial Owners and Management
Section
16(a) Beneficial Ownership Reporting Compliance
Executive
Compensation
Equity
Compensation Plans
Certain
Relationships and Related Transactions
Independent
Registered Public Accounting Firm Fees and Services -14-
PART
IV
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.
-15-
-16-
-17-
-18-
-19-
WALGREEN
CO. AND SUBSIDIARIES
SCHEDULE
II--VALUATION AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED AUGUST 31, 2006, 2005 AND 2004
(Dollars
in Millions)
-20-
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders of Walgreen Co.:
We
have
audited the consolidated financial statements of Walgreen Co. and Subsidiaries
(the "Company") as of August 31, 2006 and 2005, and for each of the three years
in the period ended August 31, 2006, management's assessment of the
effectiveness of the Company's internal control over financial reporting as
of
August 31, 2006, and the effectiveness of the Company’s internal control over
financial reporting as of August 31, 2006, and have issued our reports thereon
dated October 31, 2006; such consolidated financial statements and reports
are
included in your 2006 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of the Company listed in Item 15. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/
DELOITTE & TOUCHE LLP
Chicago,
Illinois
October
31, 2006
-21-
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.
-22-
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.
-23-
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