Q3 2009 Earning Report of Walgreen

4th Quarter and Fiscal Year 20094th Quarter and Fiscal Year 2009Conference Call

September 29, 2009

© Copyright 2009 Walgreen Co. 1

Fourth Quarter and Fiscal Year 2009Fourth Quarter and Fiscal Year 2009

Agenda Introduction

& Safe HarborRick HansDivisional VP - IR & Finance

4Q and FY Highlights& Strategies Update

Greg WassonPresident & CEO

4Q and FY Financials Wade MiquelonExecutive Vice President & CFO

Questions & Answers All


Safe HarborSafe Harbor Certain statements and projections of

f t lt d i thi t tifuture results made in this presentation constitute forward-looking information that is based on current market, competitiveis based on current market, competitive and regulatory expectations that involve risk and uncertainty.

Please see our latest Forms 10-K and 10-Q for a discussion of factors as they relate to forward-looking statements.


4Q and FY09 Highlights &4Q and FY09 Highlights &Strategies Update

Greg WassonPresident & CEOPresident & CEO


Fourth Quarter HighlightsFourth Quarter HighlightsIn $ Millions except EPS

4Q08 4Q09 Change

Net Sales $14,597 $15,703 7.6%

Net Earnings $443 $436* (1.5%)

EPS, diluted $0.45 $0.44* (2.2%)

Cash From Operations $548 $852 55.5%


* Includes $33 million after-tax, or $.03 per diluted share, restructuring and restructuring-related costs.

Fiscal 2009 HighlightsFiscal 2009 HighlightsIn $ Millions except EPS

FY08 FY09 Change

Net Sales $59,034 $63,335 7.3%

Net Earnings $2,157 $2,006* (7.0%)

EPS, diluted $2.17 $2.02* (6.9%)

Cash From Operations $3,039 $4,111 35.3%


* Includes $163 million after-tax, or $.16 per diluted share, restructuring and restructuring-related costs.

On the Frontlines of HealthcareOn the Frontlines of Healthcare Healthcare Reform

Support need for healthcare reformFocus on prevention and wellnessEmployer funded medical coverage criticalEmployer-funded medical coverage criticalProvider of quality, affordable, accessible

healthcare with 68,000 health professionals

Update on flu season16 000 certified immunizers16,000 certified immunizersSignificant growth in seasonal flu shotsPositioned for H1N1 pandemic


Taking Walgreen Co to the MarketTaking Walgreen Co. to the Market Platforms in place

7,000 drugstoresSpecialty pharmacy and infusion700 worksite health centers and retail clinics700 worksite health centers and retail clinics

Direct-to-employer/government/MCO/PBMCaterpillar – Proprietary, transparent price list

Direct-to-consumerPrescription Savings Club – nearly 2M members


Consumers Respond to 90-Day at RetailConsumers Respond to 90-Day at Retail

Promotes choice% of 90-Day Prescriptions

5.0%Promotes choice

Drives adherence4.0%

4.5%

Increases compliance

Improves outcomes 3.0%

3.5%

Lowers costs2.0%

2.5%

2005 2006 2007 2008 2009

% = (# of 90-day Rx/(# of 30-day + 90-day Rx))x100


Leveraging & EnhancingOur Core Business

Slowing store openings

Our Core Business

Re-inventing thecustomer experience

Transforming community pharmacy

Expanding health & wellness

Expanding specialty pharmacy

Broadening & deepeningg p gpayor relationships

Rewiring for growth


Projected Net New Store OpeningsProjected Net New Store Openings12%

Estimated

8%

10%

4%

6%

3% Growth

2%

4%

2007 2008 2009 2010 2011

0%


New store openings includenew and relocated stores

SG&A Growth Declining Ahead of Slowing Store Growth Ahead of Slowing Store Growth

e an

d 700 25%

g O

n-Si

tey

stor

es)

SG&A Growth Rate500

60020%

(incl

udin

ns R

x O

nly

300

400

10%

15%

es A

dded

W

algr

een

100

200

5%

Stor

e

Organic Acquired

0FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

0%


Adjusted for restructuring and restructuring-related costs

g q

Reinventing the Customer ExperienceReinventing the Customer Experience 4Q09 Milestones

– Rolling out CCR in 400 Texas stores– Rolling out convenience offering of beer and wine

Re launched walgreens com

20092008

– Re-launched walgreens.com

2010

3Q09 – Apr/May

2008

Fall ’09 – Sep/Oct Calendar 20103Q09 Apr/May 35-store CCR pilot Category optimization Inventory improvements

Fall 09 Sep/Oct CCR rollout in TX markets Begin beer and wine rollout Re-launched Walgreens.com

Calendar 2010 CCR rollout nationwide Loyalty initiative pilot


the new walgreens comthe new walgreens.com


Cost Reductions & Productivity GainsCost Reductions & Productivity GainsYear-over-Year Percent Increase

20%

Gross Profit

SG&A

15%

SG&A10%

0%

5%

SG&A adjusted for restructuring and restructuring-related costs in 1Q, 2Q, 3Q and 4Q 2009

2004 2005 2006 2007 2008 2009


Gross Profit adjusted for restructuring and restructuring-related costs in 2Q, 3Q, and 4Q 2009


4Q and FY094Q and FY09Financial Review

Wade MiquelonExecutive VP and CFO


Fourth Quarter Highlights4Q08 4Q09

Fourth Quarter Highlights

Net Sales 8.8% 7.6%Net Earnings 11.7% (1.5%)EPS (Diluted) $0.45 $0.44*Prescriptions Sales ($) 7.9% 9.0%Total Prescriptions (#) 4.9%** 9.1%**Comparablep

Prescription Sales 2.0% 4.5%Front-end Sales 3.7% (1.4%)Total Sales 2 6% 2 4%Total Sales 2.6% 2.4%Rx Scripts 1.1%*** 5.9%***

*Includes $.03 per share, diluted, of restructuring and restructuring-related costs.**I l d 111 b i 4Q08 d 136 b i 4Q09 iti i t d t ti t filli 90 d i ti


**Includes 111 bp in 4Q08 and 136 bp in 4Q09 positive impact due to more patients filling 90-day prescriptions***Includes 118 bp in 4Q08 and 179 bp in 4Q09 positive impact due to more patients filling 90-day prescriptions

Fiscal Year 2009 HighlightsFY08 FY09

Fiscal Year 2009 Highlights

Net Sales 9.8% 7.3%Net Earnings 5.7% (7.0%)EPS (Diluted) $2.17 $2.02*Prescriptions Sales ($) 9.7% 7.8%Total Prescriptions (#) 6.4%** 6.9%**Comparablep

Prescription Sales 3.9% 3.5%Front-end Sales 4.2% (0.5%)Total Sales 4 0% 2 0%Total Sales 4.0% 2.0%Rx Scripts 2.8%*** 3.6%***

*Includes $.16 per diluted share, of restructuring and restructuring-related costs.**I l d 64 b i FY08 d 137 b i FY09 iti i t d t ti t filli 90 d i ti


**Includes 64 bp in FY08 and 137 bp in FY09 positive impact due to more patients filling 90-day prescriptions***Includes 75 bp in FY08 and 173 bp in FY09 positive impact due to more patients filling 90-day prescriptions

Gross Profit MarginGross Profit Margin4Q08 4Q09 Change

Margin impacts

Gross Profit Margin 27.6% 27.7% +10 bps

Margin impacts+ Positively impacted by retail pharmacy margins due

to genericsg

- Partially offset by non-retail businesses, and lower FE margins d e to prod ct mi LIFO andFE margins due to product mix, LIFO and restructuring and restructuring-related costs


Percent Increase in SG&A DollarsTwo-year StackedTwo-year Stacked

28.0%%

30%

25.5% 24.9% 23.4%

18.6% 17 6%16 9%

10.0%11.2% 10.2% 8.0%20%

25%

17.6%16.9%14.1%

18 0%

8.6% 5.7%

10%

15% 7.4%6.1%

18.0%14.3% 14.7%

11.2% 10.2%10.0%15.4%

0%

5%

10%

8.0%

0%1Q07

+1Q082Q07

+2Q083Q07+3Q08

4Q07+4Q08

1Q08+1Q09

2Q08+2Q09

3Q08+3Q09

4Q08+4Q09


Note: SG&A data adjusted for vacation accrual in 4Q08 and restructuring and restructuring-related costs in 1Q, 2Q, 3Q and 4Q 2009.

Rewire for Growth on TargetRewire for Growth on Target $500 million pre-tax savings in FY10 $1 billion pre-tax savings in FY11

1Q09 2Q09 3Q09 4Q09

Savings $.01 $.02 $.06 $.07

Costs* ($.01) ($.06) ($.06) ($.03)

Net Savings $.00 ($.04) $.00 $.04

*Restructuring and restructuring-related charges include impact of CCR markdown activity on gross profit margin


Restructuring and restructuring-related charges include impact of CCR markdown activity on gross profit margin

Income Statement DetailsIncome Statement Details4Q08 4Q09

LIFO Provision $24M $48M

Restructuring $51Mg SKU discontinuation Consultants and other

$19M$23M

Reduction in force $9M

Net Interest Expense $7M $23M

Tax Rate 37.1% 35.8%


Balance Sheet HighlightsBalance Sheet Highlights4Q08 4Q09 Change

Accounts Receivable $2.5B $2.5B (1.2%)

Inventories $7.2B $6.8B (6.3%)( )

Accounts Payable ($4.3B) ($4.3B) 0.4%

Total $5 4B $5 0B (7 4%)Total $5.4B $5.0B (7.4%)

Total as a % of Sales 37.0% 31.8% 14.1%


FIFO Inventory TrendsFIFO Inventory Trends

4Q08 1Q09 2Q09 3Q09 4Q094Q08 1Q09 2Q09 3Q09 4Q09

Percent Change Total I t

7.2% 10.0% 4.6% (0.3%) (3.5%)Inventory

Percent Change Total (2 2%) 0 1% (4 0%) (9 1%) (11 1%)C gInventory per Store*

(2.2%) 0.1% (4.0%) (9.1%) (11.1%)

*Total FIFO inventory/total drugstore locationsTotal FIFO inventory/total drugstore locations


Net CashNet Cash1Q09 2Q09 3Q09 4Q09

Cash $886 $909 $2,300 $2,087

Short Term $650 $100 $500Investments – $650 $100 $500

Short Term Debt $1,081 $12 $10 $15

Long Term Debt $1,337 $2,332 $2,338 $2,336

Net Cash* ($1,532M) ($785M) $52M $236M


*Net cash = cash and cash-equivalents plus short-term investments less short-term and long-term debt

Capital ExpendituresCapital ExpendituresDollars in Billions

FY08 FY09 FY10E

New Stores $1.6 $1.4 lower

Existing Stores $0.3 $0.2 higher

DCs $0 1 $0 1 lowerDCs $0.1 $0.1 lower

IT & Other $0.2 $0.2 higher

T t l $2 2 $1 9 $1 6Total $2.2 $1.9 ~$1.6


Cash Flow ($ in Millions)Cash Flow ($ in Millions)Cash Flow

from Operations(FCF C h Fl f O ti C E )

Free Cash Flow(F St t t f C h Fl ) (FCF=Cash Flow from Operations – CapEx)(From Statements of Cash Flows)

1,500 1,5002009

1,000 1,000

2008

2009

0

500

0

5002008

2008

-500

0

-500

0


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

The Road AheadThe Road Ahead Opportunities

– Executing our 3 core strategies– Significant growth and share gain

Aggressively investing in business model– Aggressively investing in business model

Challenges... Our Next Opportunities– Reimbursement pressure continues– Economic uncertainty


Q ti & AQuestions & Answers



Appendix© Copyright 2009 Walgreen Co. 32

Appendix

Calculation of Adjusted SG&A: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs

1Q08 1Q09Dollars in Millions

1Q08 1Q09

SGA under GAAP $ 3,193 $ 3,482Less: Restructuring and gRestructuring-related Costs $ - $ 14

Adjusted SGA $ 3,193 $ 3,468

Adjusted YOY % Increase 8.6%


Calculation of Adjusted Gross Profit: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs


2Q08 2Q09

Gross Profit under GAAP $ 4,442 $ 4,657Plus: Restructuring and gRestructuring-related Costs $ - $ 11

Adjusted Gross Profit $ 4,442 $ 4,668





2Q08 2Q09


Adjusted SGA $ 3,354 $ 3,545





3Q08 3Q09







3Q08 3Q09


Adjusted SGA $ 3,331 $ 3,579





4Q08 4Q09







4Q08 4Q09


Adjusted SGA $ 3,324 $ 3,612



Reconciliation of FIFO Inventory:

4Q08 1Q09 2Q09 3Q09 4Q09

Reconciliation of FIFO Inventory:

4Q08 1Q09 2Q09 3Q09 4Q09

Total FIFO Inventory $8,316.3 $9,408.4 $8,742.2 $8,082.4 $8,028.7

LIFO Provision $1,067.3 $1,110.5 $1,158.7 $1,191.4 $1,239.4

Total LIFO $7 249 0 $8 297 9 $7 583 5 $6 891 0 $6 789 3OInventory $7,249.0 $8,297.9 $7,583.5 $6,891.0 $6,789.3


Calculation of Free Cash Flow:

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

Calculation of Free Cash Flow:

Cash Flow from Operations under GAAP

$390 $1,116 $985 $548 $312 $1,428 $1,519 $852

Capital Expenditures under GAAP

($490) ($553) ($610) ($572) ($638) ($454) ($442) ($393)

Free Cash Flow non-GAAP measure

($100) $563 $375 ($24) ($326) $974 $1,077 $459


Q3 2009 Earning Report of Walgreen

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