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
© Copyright 2009 Walgreen Co. 2
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.
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4Q and FY09 Highlights &4Q and FY09 Highlights &Strategies Update
Greg WassonPresident & CEOPresident & CEO
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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%
© Copyright 2009 Walgreen Co. 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%
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* 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
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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
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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
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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
© Copyright 2009 Walgreen Co. 10
Projected Net New Store OpeningsProjected Net New Store Openings12%
Estimated
8%
10%
4%
6%
3% Growth
2%
4%
2007 2008 2009 2010 2011
0%
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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%
© Copyright 2009 Walgreen Co. 12
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
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the new walgreens comthe new walgreens.com
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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
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Gross Profit adjusted for restructuring and restructuring-related costs in 2Q, 3Q, and 4Q 2009
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4Q and FY094Q and FY09Financial Review
Wade MiquelonExecutive VP and CFO
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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
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**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
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**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
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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
© Copyright 2009 Walgreen Co. 21
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
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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%
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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%
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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
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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
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*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 ~$1.6
© Copyright 2009 Walgreen Co. 27
Cash Flow ($ 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
© Copyright 2009 Walgreen Co. 28
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
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Q ti & AQuestions & Answers
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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%
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Calculation of Adjusted Gross Profit: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs
2Q08 2Q09Dollars in Millions
2Q08 2Q09
Gross Profit under GAAP $ 4,442 $ 4,657Plus: Restructuring and gRestructuring-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: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs
2Q08 2Q09Dollars in Millions
2Q08 2Q09
SGA under GAAP $ 3,354 $ 3,627Less: Restructuring and gRestructuring-related Costs $ - $ 82
Adjusted SGA $ 3,354 $ 3,545
Adjusted YOY % Increase 5.7%
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Calculation of Adjusted Gross Profit: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs
3Q08 3Q09Dollars in Millions
3Q08 3Q09
Gross Profit under GAAP $ 4,245 $ 4,459Plus: Restructuring and gRestructuring-related Costs $ - $ 65
Adjusted Gross Profit $ 4,245 $ 4,524
Adjusted YOY % Increase 6.6%
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Calculation of Adjusted SG&A: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs
3Q08 3Q09Dollars in Millions
3Q08 3Q09
SGA under GAAP $ 3,331 $ 3,613Less: Restructuring and gRestructuring-related Costs $ - $ 34
Adjusted SGA $ 3,331 $ 3,579
Adjusted YOY % Increase 7.4%
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Calculation of Adjusted Gross Profit: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs
4Q08 4Q09Dollars in Millions
4Q08 4Q09
Gross Profit under GAAP $ 4,035 $ 4,346Plus: Restructuring and gRestructuring-related Costs $ - $ 19
Adjusted Gross Profit $ 4,035 $ 4,365
Adjusted YOY % Increase 8.2%
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Calculation of Adjusted SG&A: Restr ct ring and Restr ct ring Related CostsRestructuring and Restructuring-Related Costs
4Q08 4Q09Dollars in Millions
4Q08 4Q09
SGA under GAAP $ 3,324 $ 3,644Less: Restructuring and gRestructuring-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
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
© Copyright 2009 Walgreen Co. 40
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
© Copyright 2009 Walgreen Co. 41
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