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Q3 2009 Earning Report of Walgreen

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The document provides the agenda and highlights from Walgreen Co.'s 4th quarter and fiscal year 2009 conference call with analysts held on September 29, 2009. It discusses 4th quarter and fiscal year financial results including net sales growth of 7.6% and 7.3% respectively, adjusted earnings per share of $0.44 and $2.02, and prescription sales growth. The document also summarizes Walgreen's strategies around healthcare reform, the H1N1 flu pandemic, expanding health services and 90-day prescriptions to lower costs.

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4th Quarter and Fiscal Year 2009 Conference Call September 29, 2009 © Copyright 2009 Walgreen Co. 1
Fourth Quarter and Fiscal Year 2009 Agenda  Introduction Rick Hans & Safe Harbor Divisional VP - IR & Finance  4Q and FY Highlights Greg Wasson & Strategies Update President & CEO  4Q and FY Financials Wade Miquelon Executive Vice President & CFO  Questions & Answers All © Copyright 2009 Walgreen Co. 2
Safe Harbor  Certain statements and projections of future results made in this presentation f t lt d i thi t ti constitute forward-looking information that is 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. © Copyright 2009 Walgreen Co. 3
4Q and FY09 Highlights & Strategies Update Greg Wasson President & CEO © Copyright 2009 Walgreen Co. 4
Fourth Quarter Highlights In $ 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. © Copyright 2009 Walgreen Co. 5
Fiscal 2009 Highlights In $ 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. © Copyright 2009 Walgreen Co. 6
On the Frontlines of Healthcare  Healthcare Reform  Support need for healthcare reform  Focus on prevention and wellness  Employer funded medical coverage critical Employer-funded  Provider of quality, affordable, accessible healthcare with 68,000 health professionals  Update on flu season  16 000 16,000 certified immunizers  Significant growth in seasonal flu shots  Positioned for H1N1 pandemic © Copyright 2009 Walgreen Co. 7
Taking Walgreen Co. to the Market Co  Platforms in place  7,000 drugstores  Specialty pharmacy and infusion  700 worksite health centers and retail clinics  Direct-to-employer/government/MCO/PBM  Caterpillar – Proprietary, transparent price list  Direct-to-consumer  Prescription Savings Club – nearly 2M members © Copyright 2009 Walgreen Co. 8
Consumers Respond to 90-Day at Retail % of 90-Day Prescriptions  Promotes choice 5.0% 4.5%  Drives adherence 4.0%  Increases compliance 3.5%  Improves outcomes 3.0% 2.5%  Lowers costs 2.0% 2005 2006 2007 2008 2009 % = (# of 90-day Rx/(# of 30-day + 90-day Rx))x100 © Copyright 2009 Walgreen Co. 9
Leveraging & Enhancing Our Core Business Slowing store openings Re-inventing the customer experience Transforming community pharmacy Expanding health & wellness Expanding specialty pharmacy Broadening & deepening g p g payor relationships Rewiring for growth © Copyright 2009 Walgreen Co. 10
Projected Net New Store Openings 12% 10% Estimated 8% 6% 3% Growth 4% 2% 0% 2007 2008 2009 2010 2011 New store openings include new and relocated stores © Copyright 2009 Walgreen Co. 11
SG&A Growth Declining Ahead of Slowing Store Growth Store Added (including On-Site and 700 25% e Walgreen Rx Only stores) 600 20% 500 SG&A Growth Rate y 400 15% 300 10% ns 200 5% 100 es 0 0% FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 Organic g Acquired q Adjusted for restructuring and restructuring-related costs © Copyright 2009 Walgreen Co. 12
Reinventing the Customer Experience  4Q09 Milestones – Rolling out CCR in 400 Texas stores – Rolling out convenience offering of beer and wine – Re launched walgreens com Re-launched walgreens.com 2008 2009 2010 3Q09 – Apr/May Fall ’09 – Sep/Oct 09 Calendar 2010  35-store CCR pilot  CCR rollout in TX markets  CCR rollout nationwide  Category optimization  Begin beer and wine rollout  Loyalty initiative pilot  Inventory improvements  Re-launched Walgreens.com © Copyright 2009 Walgreen Co. 13
the new walgreens com walgreens.com © Copyright 2009 Walgreen Co. 14
Cost Reductions & Productivity Gains Year-over-Year Percent Increase 20% Gross Profit 15% SG&A 10% 5% 0% 2004 2005 2006 2007 2008 2009 SG&A adjusted for restructuring and restructuring-related costs in 1Q, 2Q, 3Q and 4Q 2009 Gross Profit adjusted for restructuring and restructuring-related costs in 2Q, 3Q, and 4Q 2009 © Copyright 2009 Walgreen Co. 15
© Copyright 2009 Walgreen Co. 16
4Q and FY09 Financial Review Wade Miquelon Executive VP and CFO © Copyright 2009 Walgreen Co. 17
Fourth Quarter Highlights 4Q08 4Q09 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%** p Comparable Prescription Sales 2.0% 4.5% Front-end Sales 3.7% (1.4%) Total Sales 2.6% 2 6% 2.4% 2 4% Rx Scripts 1.1%*** 5.9%*** *Includes $.03 per share, diluted, of restructuring and restructuring-related costs. **Includes **I l d 111 b i 4Q08 and 136 b i 4Q09 positive i bp in d bp in iti impact d t more patients filli 90 d prescriptions t due to ti t filling 90-day i ti ***Includes 118 bp in 4Q08 and 179 bp in 4Q09 positive impact due to more patients filling 90-day prescriptions © Copyright 2009 Walgreen Co. 18
Fiscal Year 2009 Highlights FY08 FY09 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%** p Comparable Prescription Sales 3.9% 3.5% Front-end Sales 4.2% (0.5%) Total Sales 4.0% 4 0% 2.0% 2 0% Rx Scripts 2.8%*** 3.6%*** *Includes $.16 per diluted share, of restructuring and restructuring-related costs. **Includes **I l d 64 b i FY08 and 137 b i FY09 positive i bp in d bp in iti impact d t more patients filli 90 d prescriptions t due to ti t filling 90-day i ti ***Includes 75 bp in FY08 and 173 bp in FY09 positive impact due to more patients filling 90-day prescriptions © Copyright 2009 Walgreen Co. 19
Gross Profit Margin 4Q08 4Q09 Change Gross Profit Margin 27.6% 27.7% +10 bps  Margin impacts + Positively impacted by retail pharmacy margins due to generics g - Partially offset by non-retail businesses, and lower FE margins d e to prod ct mi LIFO and due product mix, restructuring and restructuring-related costs © Copyright 2009 Walgreen Co. 20
Percent Increase in SG&A Dollars Two-year Stacked 30% 28.0% 25.5% % 24.9% 25% 23.4% 10.0% 20% 11.2% 10.2% 8.0% 18.6% 16.9% 16 9% 17.6% 17 6% 15% 8.6% 14.1% 5.7% 7.4% 10% 6.1% 18.0% 18 0% 14.3% 14.7% 15.4% 5% 10.0% 11.2% 10.2% 8.0% 0% 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 +1Q08 +2Q08 +3Q08 +4Q08 +1Q09 +2Q09 +3Q09 +4Q09 Note: SG&A data adjusted for vacation accrual in 4Q08 and restructuring and restructuring-related costs in 1Q, 2Q, 3Q and 4Q 2009. © Copyright 2009 Walgreen Co. 21
Rewire 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 $.00 ($.04) $.00 $.04 Savings *Restructuring and restructuring-related charges include impact of CCR markdown activity on gross profit margin Restructuring © Copyright 2009 Walgreen Co. 22
Income Statement Details 4Q08 4Q09 LIFO Provision $24M $48M g Restructuring $51M  SKU discontinuation $19M  Consultants and other $23M  Reduction in force $9M Net Interest Expense $7M $23M Tax Rate 37.1% 35.8% © Copyright 2009 Walgreen Co. 23
Balance Sheet Highlights 4Q08 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 4B $5.0B $5 0B (7.4%) (7 4%) Total as a % of Sales 37.0% 31.8% 14.1% © Copyright 2009 Walgreen Co. 24
FIFO Inventory Trends 4Q08 1Q09 2Q09 3Q09 4Q09 Percent Change Total 7.2% 10.0% 4.6% (0.3%) (3.5%) Inventory I t Percent C Change Total g (2.2%) (2 2%) 0.1% 0 1% (4.0%) (4 0%) (9.1%) (9 1%) (11.1%) (11 1%) Inventory per Store* *Total FIFO inventory/total drugstore locations Total © Copyright 2009 Walgreen Co. 25
Net Cash 1Q09 2Q09 3Q09 4Q09 Cash $886 $909 $2,300 $2,087 Short Term – $650 $100 $500 Investments 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 © Copyright 2009 Walgreen Co. 26
Capital Expenditures Dollars in Billions FY08 FY09 FY10E New Stores $1.6 $1.4 lower Existing Stores $0.3 $0.2 higher DCs $0.1 $0 1 $0.1 $0 1 lower IT & Other $0.2 $0.2 higher Total T t l $2.2 $2 2 $1.9 $1 9 ~$1.6 $1 6 © Copyright 2009 Walgreen Co. 27
Cash Flow ($ in Millions) Cash Flow from Operations Free Cash Flow (From St t (F Statements of Cash Flows) t f C h Fl ) (FCF=Cash Flow from Operations – C E ) (FCF C h Fl f O ti CapEx) 1,500 1,500 2009 1,000 1,000 2009 2008 500 500 2008 0 0 -500 -500 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q © Copyright 2009 Walgreen Co. 28
The Road Ahead  Opportunities – Executing our 3 core strategies – Significant growth and share gain – Aggressively investing in business model  Challenges... Our Next Opportunities – Reimbursement pressure continues – Economic uncertainty © Copyright 2009 Walgreen Co. 29
Questions & Answers Q ti A © Copyright 2009 Walgreen Co. 30
© Copyright 2009 Walgreen Co. 31
Appendix © Copyright 2009 Walgreen Co. 32
Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 1Q08 1Q09 SGA under GAAP $ 3,193 $ 3,482 Less: Restructuring and g Restructuring-related Costs $ - $ 14 Adjusted SGA $ 3,193 $ 3,468 Adjusted YOY % Increase 8.6% © Copyright 2009 Walgreen Co. 33
Calculation of Adjusted Gross Profit: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 2Q08 2Q09 Gross Profit under GAAP $ 4,442 $ 4,657 Plus: Restructuring and g Restructuring-related Costs $ - $ 11 Adjusted Gross Profit $ 4,442 $ 4,668 Adjusted YOY % Increase 5.1% © Copyright 2009 Walgreen Co. 34
Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 2Q08 2Q09 SGA under GAAP $ 3,354 $ 3,627 Less: Restructuring and g Restructuring-related Costs $ - $ 82 Adjusted SGA $ 3,354 $ 3,545 Adjusted YOY % Increase 5.7% © Copyright 2009 Walgreen Co. 35
Calculation of Adjusted Gross Profit: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 3Q08 3Q09 Gross Profit under GAAP $ 4,245 $ 4,459 Plus: Restructuring and g Restructuring-related Costs $ - $ 65 Adjusted Gross Profit $ 4,245 $ 4,524 Adjusted YOY % Increase 6.6% © Copyright 2009 Walgreen Co. 36
Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 3Q08 3Q09 SGA under GAAP $ 3,331 $ 3,613 Less: Restructuring and g Restructuring-related Costs $ - $ 34 Adjusted SGA $ 3,331 $ 3,579 Adjusted YOY % Increase 7.4% © Copyright 2009 Walgreen Co. 37
Calculation of Adjusted Gross Profit: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 4Q08 4Q09 Gross Profit under GAAP $ 4,035 $ 4,346 Plus: Restructuring and g Restructuring-related Costs $ - $ 19 Adjusted Gross Profit $ 4,035 $ 4,365 Adjusted YOY % Increase 8.2% © Copyright 2009 Walgreen Co. 38
Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 4Q08 4Q09 SGA under GAAP $ 3,324 $ 3,644 Less: Restructuring and g Restructuring-related Costs $ - $ 32 Adjusted SGA $ 3,324 $ 3,612 Adjusted YOY % Increase 8.7% © Copyright 2009 Walgreen Co. 39
Reconciliation of FIFO Inventory: 4Q08 1Q09 2Q09 3Q09 4Q09 Total FIFO $8,316.3 $9,408.4 $8,742.2 $8,082.4 $8,028.7 Inventory LIFO Provision $1,067.3 $1,110.5 $1,158.7 $1,191.4 $1,239.4 O Total LIFO $7,249.0 $7 249 0 $8,297.9 $8 297 9 $7,583.5 $7 583 5 $6,891.0 $6 891 0 $6,789.3 $6 789 3 Inventory © Copyright 2009 Walgreen Co. 40
Calculation of Free Cash Flow: 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Cash Flow from Operations $390 $1,116 $985 $548 $312 $1,428 $1,519 $852 under GAAP Capital Expenditures ($490) ($553) ($610) ($572) ($638) ($454) ($442) ($393) under GAAP Free Cash Flow non-GAAP ($100) $563 $375 ($24) ($326) $974 $1,077 $459 measure © Copyright 2009 Walgreen Co. 41

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Q3 2009 Earning Report of Walgreen

  • 1. 4th Quarter and Fiscal Year 2009 Conference Call September 29, 2009 © Copyright 2009 Walgreen Co. 1
  • 2. Fourth Quarter and Fiscal Year 2009 Agenda  Introduction Rick Hans & Safe Harbor Divisional VP - IR & Finance  4Q and FY Highlights Greg Wasson & Strategies Update President & CEO  4Q and FY Financials Wade Miquelon Executive Vice President & CFO  Questions & Answers All © Copyright 2009 Walgreen Co. 2
  • 3. Safe Harbor  Certain statements and projections of future results made in this presentation f t lt d i thi t ti constitute forward-looking information that is 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. © Copyright 2009 Walgreen Co. 3
  • 4. 4Q and FY09 Highlights & Strategies Update Greg Wasson President & CEO © Copyright 2009 Walgreen Co. 4
  • 5. Fourth Quarter Highlights In $ 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. © Copyright 2009 Walgreen Co. 5
  • 6. Fiscal 2009 Highlights In $ 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. © Copyright 2009 Walgreen Co. 6
  • 7. On the Frontlines of Healthcare  Healthcare Reform  Support need for healthcare reform  Focus on prevention and wellness  Employer funded medical coverage critical Employer-funded  Provider of quality, affordable, accessible healthcare with 68,000 health professionals  Update on flu season  16 000 16,000 certified immunizers  Significant growth in seasonal flu shots  Positioned for H1N1 pandemic © Copyright 2009 Walgreen Co. 7
  • 8. Taking Walgreen Co. to the Market Co  Platforms in place  7,000 drugstores  Specialty pharmacy and infusion  700 worksite health centers and retail clinics  Direct-to-employer/government/MCO/PBM  Caterpillar – Proprietary, transparent price list  Direct-to-consumer  Prescription Savings Club – nearly 2M members © Copyright 2009 Walgreen Co. 8
  • 9. Consumers Respond to 90-Day at Retail % of 90-Day Prescriptions  Promotes choice 5.0% 4.5%  Drives adherence 4.0%  Increases compliance 3.5%  Improves outcomes 3.0% 2.5%  Lowers costs 2.0% 2005 2006 2007 2008 2009 % = (# of 90-day Rx/(# of 30-day + 90-day Rx))x100 © Copyright 2009 Walgreen Co. 9
  • 10. Leveraging & Enhancing Our Core Business Slowing store openings Re-inventing the customer experience Transforming community pharmacy Expanding health & wellness Expanding specialty pharmacy Broadening & deepening g p g payor relationships Rewiring for growth © Copyright 2009 Walgreen Co. 10
  • 11. Projected Net New Store Openings 12% 10% Estimated 8% 6% 3% Growth 4% 2% 0% 2007 2008 2009 2010 2011 New store openings include new and relocated stores © Copyright 2009 Walgreen Co. 11
  • 12. SG&A Growth Declining Ahead of Slowing Store Growth Store Added (including On-Site and 700 25% e Walgreen Rx Only stores) 600 20% 500 SG&A Growth Rate y 400 15% 300 10% ns 200 5% 100 es 0 0% FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 Organic g Acquired q Adjusted for restructuring and restructuring-related costs © Copyright 2009 Walgreen Co. 12
  • 13. Reinventing the Customer Experience  4Q09 Milestones – Rolling out CCR in 400 Texas stores – Rolling out convenience offering of beer and wine – Re launched walgreens com Re-launched walgreens.com 2008 2009 2010 3Q09 – Apr/May Fall ’09 – Sep/Oct 09 Calendar 2010  35-store CCR pilot  CCR rollout in TX markets  CCR rollout nationwide  Category optimization  Begin beer and wine rollout  Loyalty initiative pilot  Inventory improvements  Re-launched Walgreens.com © Copyright 2009 Walgreen Co. 13
  • 14. the new walgreens com walgreens.com © Copyright 2009 Walgreen Co. 14
  • 15. Cost Reductions & Productivity Gains Year-over-Year Percent Increase 20% Gross Profit 15% SG&A 10% 5% 0% 2004 2005 2006 2007 2008 2009 SG&A adjusted for restructuring and restructuring-related costs in 1Q, 2Q, 3Q and 4Q 2009 Gross Profit adjusted for restructuring and restructuring-related costs in 2Q, 3Q, and 4Q 2009 © Copyright 2009 Walgreen Co. 15
  • 16. © Copyright 2009 Walgreen Co. 16
  • 17. 4Q and FY09 Financial Review Wade Miquelon Executive VP and CFO © Copyright 2009 Walgreen Co. 17
  • 18. Fourth Quarter Highlights 4Q08 4Q09 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%** p Comparable Prescription Sales 2.0% 4.5% Front-end Sales 3.7% (1.4%) Total Sales 2.6% 2 6% 2.4% 2 4% Rx Scripts 1.1%*** 5.9%*** *Includes $.03 per share, diluted, of restructuring and restructuring-related costs. **Includes **I l d 111 b i 4Q08 and 136 b i 4Q09 positive i bp in d bp in iti impact d t more patients filli 90 d prescriptions t due to ti t filling 90-day i ti ***Includes 118 bp in 4Q08 and 179 bp in 4Q09 positive impact due to more patients filling 90-day prescriptions © Copyright 2009 Walgreen Co. 18
  • 19. Fiscal Year 2009 Highlights FY08 FY09 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%** p Comparable Prescription Sales 3.9% 3.5% Front-end Sales 4.2% (0.5%) Total Sales 4.0% 4 0% 2.0% 2 0% Rx Scripts 2.8%*** 3.6%*** *Includes $.16 per diluted share, of restructuring and restructuring-related costs. **Includes **I l d 64 b i FY08 and 137 b i FY09 positive i bp in d bp in iti impact d t more patients filli 90 d prescriptions t due to ti t filling 90-day i ti ***Includes 75 bp in FY08 and 173 bp in FY09 positive impact due to more patients filling 90-day prescriptions © Copyright 2009 Walgreen Co. 19
  • 20. Gross Profit Margin 4Q08 4Q09 Change Gross Profit Margin 27.6% 27.7% +10 bps  Margin impacts + Positively impacted by retail pharmacy margins due to generics g - Partially offset by non-retail businesses, and lower FE margins d e to prod ct mi LIFO and due product mix, restructuring and restructuring-related costs © Copyright 2009 Walgreen Co. 20
  • 21. Percent Increase in SG&A Dollars Two-year Stacked 30% 28.0% 25.5% % 24.9% 25% 23.4% 10.0% 20% 11.2% 10.2% 8.0% 18.6% 16.9% 16 9% 17.6% 17 6% 15% 8.6% 14.1% 5.7% 7.4% 10% 6.1% 18.0% 18 0% 14.3% 14.7% 15.4% 5% 10.0% 11.2% 10.2% 8.0% 0% 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 +1Q08 +2Q08 +3Q08 +4Q08 +1Q09 +2Q09 +3Q09 +4Q09 Note: SG&A data adjusted for vacation accrual in 4Q08 and restructuring and restructuring-related costs in 1Q, 2Q, 3Q and 4Q 2009. © Copyright 2009 Walgreen Co. 21
  • 22. Rewire 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 $.00 ($.04) $.00 $.04 Savings *Restructuring and restructuring-related charges include impact of CCR markdown activity on gross profit margin Restructuring © Copyright 2009 Walgreen Co. 22
  • 23. Income Statement Details 4Q08 4Q09 LIFO Provision $24M $48M g Restructuring $51M  SKU discontinuation $19M  Consultants and other $23M  Reduction in force $9M Net Interest Expense $7M $23M Tax Rate 37.1% 35.8% © Copyright 2009 Walgreen Co. 23
  • 24. Balance Sheet Highlights 4Q08 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 4B $5.0B $5 0B (7.4%) (7 4%) Total as a % of Sales 37.0% 31.8% 14.1% © Copyright 2009 Walgreen Co. 24
  • 25. FIFO Inventory Trends 4Q08 1Q09 2Q09 3Q09 4Q09 Percent Change Total 7.2% 10.0% 4.6% (0.3%) (3.5%) Inventory I t Percent C Change Total g (2.2%) (2 2%) 0.1% 0 1% (4.0%) (4 0%) (9.1%) (9 1%) (11.1%) (11 1%) Inventory per Store* *Total FIFO inventory/total drugstore locations Total © Copyright 2009 Walgreen Co. 25
  • 26. Net Cash 1Q09 2Q09 3Q09 4Q09 Cash $886 $909 $2,300 $2,087 Short Term – $650 $100 $500 Investments 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 © Copyright 2009 Walgreen Co. 26
  • 27. Capital Expenditures Dollars in Billions FY08 FY09 FY10E New Stores $1.6 $1.4 lower Existing Stores $0.3 $0.2 higher DCs $0.1 $0 1 $0.1 $0 1 lower IT & Other $0.2 $0.2 higher Total T t l $2.2 $2 2 $1.9 $1 9 ~$1.6 $1 6 © Copyright 2009 Walgreen Co. 27
  • 28. Cash Flow ($ in Millions) Cash Flow from Operations Free Cash Flow (From St t (F Statements of Cash Flows) t f C h Fl ) (FCF=Cash Flow from Operations – C E ) (FCF C h Fl f O ti CapEx) 1,500 1,500 2009 1,000 1,000 2009 2008 500 500 2008 0 0 -500 -500 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q © Copyright 2009 Walgreen Co. 28
  • 29. The Road Ahead  Opportunities – Executing our 3 core strategies – Significant growth and share gain – Aggressively investing in business model  Challenges... Our Next Opportunities – Reimbursement pressure continues – Economic uncertainty © Copyright 2009 Walgreen Co. 29
  • 30. Questions & Answers Q ti A © Copyright 2009 Walgreen Co. 30
  • 31. © Copyright 2009 Walgreen Co. 31
  • 32. Appendix © Copyright 2009 Walgreen Co. 32
  • 33. Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 1Q08 1Q09 SGA under GAAP $ 3,193 $ 3,482 Less: Restructuring and g Restructuring-related Costs $ - $ 14 Adjusted SGA $ 3,193 $ 3,468 Adjusted YOY % Increase 8.6% © Copyright 2009 Walgreen Co. 33
  • 34. Calculation of Adjusted Gross Profit: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 2Q08 2Q09 Gross Profit under GAAP $ 4,442 $ 4,657 Plus: Restructuring and g Restructuring-related Costs $ - $ 11 Adjusted Gross Profit $ 4,442 $ 4,668 Adjusted YOY % Increase 5.1% © Copyright 2009 Walgreen Co. 34
  • 35. Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 2Q08 2Q09 SGA under GAAP $ 3,354 $ 3,627 Less: Restructuring and g Restructuring-related Costs $ - $ 82 Adjusted SGA $ 3,354 $ 3,545 Adjusted YOY % Increase 5.7% © Copyright 2009 Walgreen Co. 35
  • 36. Calculation of Adjusted Gross Profit: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 3Q08 3Q09 Gross Profit under GAAP $ 4,245 $ 4,459 Plus: Restructuring and g Restructuring-related Costs $ - $ 65 Adjusted Gross Profit $ 4,245 $ 4,524 Adjusted YOY % Increase 6.6% © Copyright 2009 Walgreen Co. 36
  • 37. Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 3Q08 3Q09 SGA under GAAP $ 3,331 $ 3,613 Less: Restructuring and g Restructuring-related Costs $ - $ 34 Adjusted SGA $ 3,331 $ 3,579 Adjusted YOY % Increase 7.4% © Copyright 2009 Walgreen Co. 37
  • 38. Calculation of Adjusted Gross Profit: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 4Q08 4Q09 Gross Profit under GAAP $ 4,035 $ 4,346 Plus: Restructuring and g Restructuring-related Costs $ - $ 19 Adjusted Gross Profit $ 4,035 $ 4,365 Adjusted YOY % Increase 8.2% © Copyright 2009 Walgreen Co. 38
  • 39. Calculation of Adjusted SG&A: Restructuring Restr ct ring and Restructuring-Related Costs Restr ct ring Related Dollars in Millions 4Q08 4Q09 SGA under GAAP $ 3,324 $ 3,644 Less: Restructuring and g Restructuring-related Costs $ - $ 32 Adjusted SGA $ 3,324 $ 3,612 Adjusted YOY % Increase 8.7% © Copyright 2009 Walgreen Co. 39
  • 40. Reconciliation of FIFO Inventory: 4Q08 1Q09 2Q09 3Q09 4Q09 Total FIFO $8,316.3 $9,408.4 $8,742.2 $8,082.4 $8,028.7 Inventory LIFO Provision $1,067.3 $1,110.5 $1,158.7 $1,191.4 $1,239.4 O Total LIFO $7,249.0 $7 249 0 $8,297.9 $8 297 9 $7,583.5 $7 583 5 $6,891.0 $6 891 0 $6,789.3 $6 789 3 Inventory © Copyright 2009 Walgreen Co. 40
  • 41. Calculation of Free Cash Flow: 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Cash Flow from Operations $390 $1,116 $985 $548 $312 $1,428 $1,519 $852 under GAAP Capital Expenditures ($490) ($553) ($610) ($572) ($638) ($454) ($442) ($393) under GAAP Free Cash Flow non-GAAP ($100) $563 $375 ($24) ($326) $974 $1,077 $459 measure © Copyright 2009 Walgreen Co. 41