1 st Quarter Fiscal Year 2014 Conference Call. December 20, 2013

Transcription

1 1 st Quarter Fiscal Year 2014 Conference Call December 20, 2013

2 1st Quarter Fiscal Year 2014 Agenda Introduction & Safe Harbor 1Q14 Operating Review Rick Hans, CFA Divisional Vice President, Investor Relations & Finance Greg Wasson President & CEO 1Q14 Financial Review Questions & Answers Wade Miquelon Executive Vice President, CFO, & President, International Greg Wasson Wade Miquelon Kermit Crawford President, Pharmacy, Health & Wellness Mark Wagner President, Operations & Community Management 2

3 Safe Harbor and Non-GAAP Certain statements and projections of future results made in this presentation constitute forward-looking statements that are based on current market, competitive and regulatory expectations that involve risk and uncertainty. Except to the extent required by the law, we undertake no obligation to update publicly any forward-looking statement after this presentation, whether as a result of new information, future events, changes in assumptions or otherwise. Please see our latest Form 10-K and subsequent filings for a discussion of risk factors as they relate to forward-looking statements. Today s presentation includes certain non-gaap financial measures, and we refer you to the Appendix to the presentation materials available on our investor relations website for reconciliations to the most directly comparable GAAP financial measures and related information. 3

4 Walgreens 1 st Quarter Fiscal Year 2014 Highlights and Operating Review Greg Wasson President and CEO 4

5 Q1 FY14 Highlights Record sales of $18.3B and record GAAP EPS of $0.72 Filled a record 213M scripts, increasing our pharmacy market share to 19.4% Expanded our collaboration with Johns Hopkins Medicine Announced national roll-out Theranos Wellness Centers Acquired Kerr Drug s retail pharmacies and specialty pharmacy business Kicked-off 10-year distribution agreement with AmerisourceBergen Opened Net-Zero energy store in Evanston, Illinois 5

6 1Q14 Financial Results $ in Millions except EPS GAAP 1Q13 1Q14 Change Net Sales $17,316 $18, % Operating Income (EBIT) $705 $ % Net Earnings $413 $ % Diluted EPS $0.43 $ % Non-GAAP (See Appendix) 1Q13* 1Q14* Change Adjusted Operating Income (EBIT) $924 $1, % Adjusted Net Earnings $553 $ % Adjusted Diluted EPS $0.58 $ % *Excludes LIFO provision, acquisition-related amortization and acquisition-related costs in all periods presented. 1Q14 also excludes Alliance Boots related tax, organizational efficiency costs and the positive impact of fair value adjustments and amortization related to the AmerisourceBergen warrants. 1Q13 also excludes Hurricane Sandy costs. See Appendix. 6

7 Trends in GP$ & SG&A$ Growth (GAAP) $600 Year-Over-Year Change $ in Millions $400 Gross Profit $ $200 $0 SG&A $ $53 $(19) -$200 -$400 1Q12 1Q13 1Q14 FY11 FY12 FY13 FY14 7

8 Trends in Adjusted GP$ & SG&A$ Growth (Non-GAAP - See Appendix) $600 Adjusted Gross Profit $ Year-Over-Year Change $ in Millions $400 $200 $0 Adjusted SG&A $ $61 $17 -$200 -$400 1Q12 1Q13 1Q14 FY11 FY12 FY13 FY14 8

9 Three Strategic Growth Drivers Create a Well Experience Transform the Role of Community Pharmacy Establish an Efficient Global Platform 9

10 Create a Well Experience Customer Value Innovative Products and Services Systematic Localized Offering Most Relevant Network and Formats Performance Meaningful promotional investment to meet needs of value conscious customers Comp FE sales up 2.4% Comp customer traffic increased 0.2% & comp basket increased 2.2% 10

11 Create a Well Experience Customer Value Innovative Products and Services Systematic Localized Offering Most Relevant Network and Formats Looking Ahead Continue to focus on Well Experience roll-out Enhance global beauty program as we continue to leverage Alliance Boots Utilize Balance Rewards data to sharpen category plans 11

12 Transform the Role of Community Pharmacy Comprehensive Care Performance Differentiated Experience Strategic Partnerships Administered 1.1M more flu shots (6.4M total) season to date despite slow start to flu season Script comp increased 5.5% with retail market share up 50bps to 19.4% by filling a record amount of prescriptions Significant shift in the generic wave had a dilutive effect on margin in the quarter 12

13 Transform the Role of Community Pharmacy Comprehensive Care Looking Ahead Differentiated Experience Strategic Partnerships Focus on driving non-flu immunizations beyond the flu season Work toward ensuring the business of Medicare Part B patients Aim to outpace the industry in growth of Medicare Part D patients again this year 13

14 Walgreens Well Network Community Pharmacy & Centers of Excellence Mail & Mobile Pharmacy Specialty Pharmacy, Infusion Services & Home Infusion Workplace Health Centers & Pharmacies HealthCare Clinics Hospital Onsite Pharmacies

15 Establish an Efficient Global Platform Design a Winning Global Organization Optimize the Global Supply Chain Expand Own Brand Portfolio Leverage Best Practices, Capabilities, & Innovation Pursue New Market Opportunities Performance Strategic partnership with Alliance Boots contributed $0.14 of EPS accretion, including a $0.07 one-time tax benefit Began integration with ABC, joining our global procurement process Moved our brand drug distribution to ABC 15

16 Well Positioned for the Future 16

17 Walgreens 1 st Quarter Fiscal Year 2014 Financial Review Wade Miquelon Executive VP, CFO, & President, International 17

18 1Q14 Adjusted EPS Walk (Non-GAAP - See Appendix) Acquisition Related Items* Special Items** $0.02 ($0.17) $0.11 LIFO Provision GAAP EPS Adjusted EPS $0.04 $0.72 $ Net Earnings $695M Adjusted Net Earnings $688M 0.00 *Comprised of acquisition-related costs of $.08 and Alliance Boots-related tax of $0.03. **Comprised of positive impact of fair market value adjustments and amortization related to the AmerisourceBergen warrants of $0.17 and the negative impact of organizational efficiency costs $

19 1Q14 Comparable Store Sales Year-Over-Year Percentage Changes 1Q13 1Q14 Comparable Stores Prescription Sales (11.3%) 7.2% Front-End Sales (2.0%) 2.4% Total Sales (8.0%) 5.4% Rx Scripts (4.8%) 5.5% 19

20 Front-End Comparable Store Sales Trends One-Year & Two-Year Percentage Change 8% 6% Two-Year Stack % One-Year % Change 4% 2.4% 2% 1.2% 1.6% 0.4% 0% -2% (0.9%) (1.3%) (1.6%) (2.0%) -4% *2Q12 excludes leap day FY10 FY11 FY12* FY13 FY14 20

21 Comparable Store Scripts Number Trends 15% One-Year & Two-Year Percentage Change 10% 5% 4.3% 7.1% 7.1% 5.5% 0% -5% Two-Year Stack % (6.1%) (4.8%) -10% One-Year % Change (9.1%) (8.0%) *2Q12 excludes leap day FY10 FY11 FY12* FY13 FY14 21

22 Adjusted Gross Profit Margin (Non-GAAP - See Appendix) 1Q13 1Q14 Change Adjusted Gross Profit Margin* 29.8% 28.5% -130bps Negative Impacts Pharmacy Fewer generic drugs entering the market compared with the yearago quarter Front End Meaningful promotional investments throughout the quarter to drive store traffic *LIFO Gross Profit Margin (GAAP) was 29.4% in 1Q13 and 28.1% in 1Q14, a decrease of 130bps. See Appendix. 22

23 FE & Rx Adjusted FIFO Gross Profit Margin Progression (Non-GAAP - See Appendix) 1Q13 2Q13 3Q13 4Q13 1Q14 Front End NEUTRAL Pharmacy Basis Point Impact Year Over Year Adjusted FIFO Gross Profit Margin % % 30.5% 29.2% 28.9% 28.5% Adjusted FIFO Gross Profit Dollar Growth 0.1% 4.0% 5.3% 4.3% 1.2% 23

24 Generic Impact on Comp Store Rx Sales 0% Year-Over-Year Percentage Changes -2% -4% -6% -8% -10% Q1 FY11 Q1 FY12 Q1 FY13 Q1 FY14 FY 2011 FY 2012 FY

25 Gross Profit Dollar Growth Trends (GAAP) Year-Over-Year Percentage Change 10% % 3.2% 4.0% 4.1% 7.4% 1.0% 1.2% 0% (0.1%) (2.7%) (4.6%) -5% 1Q 2Q 3Q 4Q 25

26 Adjusted Gross Profit Dollar Growth Trends (Non-GAAP See Appendix) Year-Over-Year Percentage Change 10% % 5% 3.2% 4.0% 1.2% 1.5% 4.3% 0% 0.1% (2.5%) (3.2%) -5% 1Q 2Q 3Q 4Q 26

27 1Q14 GAAP to Adjusted SG&A $ Growth Walk (Non-GAAP - See Appendix) 1% 0.9% (0.4%) 0.4% 0% 0.3% 0.0% (0.4%) -1% GAAP SG&A Growth WAG Amortization Costs Acquisition- Related Costs Hurricane Sandy Organizational Efficiency Costs Adjusted SG&A Growth 27

28 SG&A Dollar Growth Trends (GAAP) Year-Over-Year Percentage Change 10% % 5.0% 5.0% 5.3% 4.6% 4.0% 0.9% 0% (0.4%) 0.2% (1.6%) -5% 1Q 2Q 3Q 4Q 28

29 Adjusted SG&A Dollar Growth Trends (Non-GAAP See Appendix) Year-Over-Year Percentage Change 10% % 4.9% 4.2% 4.5% 2.5% 3.7% 1.5% 0% 0.4% -5% (2.2%) (1.0%) 1Q 2Q 3Q 4Q 29

30 Two-Year Stacked SG&A $ Growth Trends (GAAP) 20% 15% 12.0% 12.0% 10% 5.0% 4.0% 9.6% 9.0% 5% 7.0% 8.0% 5.6% 7.2% 5.0% 0.2% 4.6% 4.8% 5.0% 5.0% 4.0% 3.7% 5.3% 1.1% 4.2% 4.6% 0% -1.6% -1.6% 0.2% 0.9% (0.4%) -5% +1Q12 1Q11 +2Q12 2Q11 +3Q12 3Q11 +4Q12 4Q11 +1Q13 1Q12 +2Q13 2Q12 +3Q13 3Q12 +4Q13 4Q12 +1Q14 1Q13 30

31 Two-Year Stacked Adjusted SG&A $ Growth Trends (Non-GAAP - See Appendix) 20% 15% 11.7% 11.6% 10% 4.9% 3.7% 7.4% 7.9% 5% 0% 6.8% 7.9% 5.1% 7.3% -2.2% 3.4% 4.4% -1.0% 2.5% 4.9% 4.2% 3.7% 2.3% 4.5% -2.2% 0.5% 1.5% -1.0% 2.9% 0.4% 2.5% -5% +1Q12 1Q11 +2Q12 2Q11 +3Q12 3Q11 +4Q12 4Q11 +1Q13 1Q12 +2Q13 2Q12 +3Q13 3Q12 +4Q13 4Q12 +1Q14 1Q13 31

32 Adjusted GP$ and SG&A$ Growth Spread (Non-GAAP See Appendix) 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Adjusted FIFO Gross Profit $ Growth Adjusted SG&A $ Growth 1.5% (2.5%) (3.2%) 0.1% 4.0% 5.3% 4.3% 1.2% 3.7% (2.2%) (1.0%) 2.5% 4.2% 4.5% 1.5% 0.4% Spread (bps)

33 Income Statement Details 1Q13 1Q14 LIFO Provision $55M $58M Net Interest Expense $37M $41M Tax Rate *38.2% *36.8% Diluted Shares Outstanding 951M 962M *Represents Walgreens GAAP tax rate including the impact of Alliance Boots. 33

34 Components of Working Capital 1Q13 1Q14 % Change Cash Impact Cash & Cash Equivalents $1.8B $1.0B (47.0%) - Accounts Receivable $2.3B $2.7B 20.5% - Inventories $7.8B $7.7B (1.2%) + Accounts Payable ($4.8B) ($4.8B) (1.2%) - Net Working Capital* $5.3B $5.6B 5.7% - Net WC as a % of Sales 30.4% 31.1% 2.3% *Net Working Capital defined as Accounts Receivable + Inventory + Accounts Payable 34

35 Cumulative Cash Flow (in $ Millions) $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Cash Flow from Operations (From Statements of Cash Flows) Q1 Q2 Q3 Q4 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 -$500 Free Cash Flow (Non-GAAP - See Appendix) (FCF=Cash Flow from Operations - CapEx) 2014 Q1 Q2 Q3 Q

36 Q1 FY14 Adjusted EPS Accretion from Alliance Boots (in millions, except per share amounts) Q1 FY14 * Before-Tax Walgreens Synergies, Net 83 Taxes Non-Controlling Interest (27) (9) After-Tax Walgreens Synergies 47 After Tax Alliance Boots Equity Earnings 151 Alliance Boots Warrant Income (19) Deal Amortization Adjustment 8 Alliance Boots Amortization Adjustment 13 Walgreens Incremental After Tax Interest Expense (13) After Tax Alliance Boots Equity Earnings 140 Adjusted Net Income from AB Investment* 187 Adjusted EPS (Before Share Dilution)* 0.19 Dilution from Share Issue (0.05) Adjusted EPS (Net of Share Dilution)* 0.14 *Non-GAAP Financial Measures - see Appendix. Equity earnings in Alliance Boots exclude the results of Walgreens Boots Alliance Development GmbH, which is consolidated into the company s results. 36

37 Looking Ahead to 2Q14 and FY14 FY14E Combined Net Synergies $350M - $400M 2Q14E Adjusted EPS Accretion* $ $0.08 Forward-looking statements. See cautionary note in attached Appendix. *Non-GAAP Financial Measure See Appendix. Based on company s current estimates of IFRS to GAAP conversion and foreign exchange rates, which are subject to change based on future developments. Does not include amortization expense or one-time transaction costs or impact of ABC warrants. 37

38 Flu Comparison to Date and Outlook 60 Affected Population in Millions Seasonal Flu Trend Fan Flu IMS Data Year Average

39 Fiscal Year 2016 Goals + FY 2016 Goals Revenue Operating Income (GAAP) Adjusted Operating Income* Synergies Operating Cash Flow Net Debt** >$130 Billion $8.5 - $9.0 Billion $9.0 - $9.5 Billion $1 Billion ~$8 Billion ~$11 Billion Forward-Looking Statements See cautionary note in attached Appendix. All figures assume constant currency and exercise of option to acquire remaining 55% interest. All financial goals assume no major mergers and acquisitions or strategic transactions. Revenue of $130B includes Alliance Boots share of associates and joint venture sales * Non-GAAP Financial Measures see Appendix. ** Net debt defined as balance sheet debt less cash and cash equivalents. Net debt excludes lease obligations. ~ 1.1B shares projected to be outstanding in FY Projected shares outstanding assumes no share repurchases. 39

40 Questions & Answers 40

41 Appendix The following information provides reconciliations of the supplemental non-gaap financial measures, as defined under SEC rules, presented in this presentation to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States (GAAP). The company has provided these non-gaap financial measures in the presentation, which are not calculated or presented in accordance with GAAP, as supplemental information in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-gaap financial measures are presented because management has evaluated the company s financial results both including and excluding the adjusted items and believes that the non-gaap financial measures presented provide additional perspective and insights when analyzing the core operating performance of the Company s business from period to period and trends in the company s historical operating results. These supplemental non-gaap financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the presentation. The company does not provide a non-gaap reconciliation for non-gaap estimates on a forward-looking basis where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. 41

42 Alliance Boots Equity Income Walk (1Q14) (Unaudited) $ in Millions Alliance Boots Net Income (IFRS)* 357 IFRS to U.S. GAAP Adjustments (3) Alliance Boots Net Income 354 Walgreens Share (45%) 159 Amortization, net of tax 8 Walgreens Equity Income (GAAP)* 151 *Alliance Boots Net Income (IFRS) is presented for the three-month period ended August 31, 2013 due to three-month reported lag. Excludes Galenica and results from Walgreens Boots Alliance Development GmbH. Pounds Sterling to USD average exchange rate of $1.53/. 42

43 Reconciliation of Adjusted Gross Profit & Margin $ in Millions 4Q08 1Q09 2Q09 3Q09 4Q09 Net sales (GAAP) $ 14,597 $ 14,947 $ 16,475 $ 16,210 $ 15,703 Gross profit (GAAP) $ 4,035 $ 4,151 $ 4,657 $ 4,459 $ 4,346 LIFO provision Adjusted gross profit (Non-GAAP) $ 4,059 $ 4,194 $ 4,706 $ 4,491 $ 4,394 YOY Change Gross profit $ (GAAP) $ 311 Gross profit % (GAAP) Gross profit % 2-year stack (GAAP) Adjusted gross profit $ (Non-GAAP) $ 335 Adjusted gross profit % (Non-GAAP) Adjusted gross profit % 2-year stack (Non-GAAP) Gross profit margin (GAAP) Year over year basis point impact (GAAP) Adjusted gross profit margin (Non-GAAP) Adjusted year over year basis point impact (Non-GAAP) 43

44 Reconciliation of Adjusted Gross Profit & Margin $ in Millions 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Net sales (GAAP) $ 16,364 $ 16,987 $ 17,199 $ 16,870 $ 17,344 $ 18,502 $ 18,371 $ 17,967 Gross profit (GAAP) $ 4,538 $ 4,897 $ 4,749 $ 4,792 $ 4,945 $ 5,324 $ 5,154 $ 5,069 LIFO provision Adjusted gross profit (Non-GAAP) $ 4,572 $ 4,924 $ 4,767 $ 4,853 $ 4,987 $ 5,380 $ 5,204 $ 5,129 YOY Change Gross profit $ (GAAP) $ 387 $ 240 $ 290 $ 446 $ 407 $ 427 $ 405 $ 277 Gross profit % (GAAP) 9.0% 8.7% 8.5% 5.8% Gross profit % 2-year stack (GAAP) Adjusted gross profit $ (Non-GAAP) $ 378 $ 218 $ 276 $ 459 $ 415 $ 456 $ 437 $ 276 Adjusted gross profit % (Non-GAAP) 9.1% 9.3% 9.2% 5.7% Adjusted gross profit % 2-year stack (Non-GAAP) Gross profit margin (GAAP) 28.4% 28.5% 28.8% 28.1% 28.2% Year over year basis point impact (GAAP) -0.2% Adjusted gross profit margin (Non-GAAP) 28.8% 28.8% 29.1% 28.3% 28.5% Adjusted year over year basis point impact (Non-GAAP) -0.3% 44

45 Reconciliation of Adjusted Gross Profit & Margin 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Net sales (GAAP) $ 18,157 $ 18,651 $ 17,752 $ 17,073 $ 17,316 $ 18,647 $ 18,313 $ 17,941 Gross profit (GAAP) $ 5,104 $ 5,389 $ 5,014 $ 4,835 $ 5,099 $ 5,607 $ 5,222 $ 5,191 LIFO provision (8) Adjusted gross profit (Non-GAAP) $ 5,149 $ 5,461 $ 5,074 $ 4,967 $ 5,154 $ 5,679 $ 5,342 $ 5,183 YOY Change $ in Millions Gross profit $ (GAAP) $ 159 $ 65 $ (140) $ (234) $ (5) $ 218 $ 208 $ 356 Gross profit % (GAAP) 3.2% 1.2% -2.7% -4.6% -0.1% 4.0% 4.1% 7.4% Gross profit % 2-year stack (GAAP) 12.2% 9.9% 5.8% 1.2% 3.1% 5.2% 1.4% 2.8% Adjusted gross profit $ (Non-GAAP) $ 162 $ 81 $ (130) $ (162) $ 5 $ 218 $ 268 $ 216 Adjusted gross profit % (Non- GAAP) 3.2% 1.5% -2.5% -3.2% 0.1% 4.0% 5.3% 4.3% Adjusted gross profit % 2-year stack (Non-GAAP) 12.3% 10.8% 6.7% 2.5% 3.3% 5.5% 2.8% 1.1% Gross profit margin (GAAP) 28.1% 28.9% 28.2% 28.3% 29.4% 30.1% 28.5% 28.9% Year over year basis point impact (GAAP) -0.4% 0.1% 0.1% 0.1% 1.30% 1.2% 0.3% 0.6% Adjusted gross profit margin (Non-GAAP) 28.4% 29.3% 28.6% 29.1% 29.8% 30.5% 29.2% 28.9% Adjusted year over year basis point impact (Non-GAAP) -0.4% 0.2% 0.3% 0.6% 1.40% 1.2% 0.6% -0.2% 45

46 Reconciliation of Adjusted Gross Profit & Margin 1Q14 Net sales (GAAP) $ 18,329 Gross profit (GAAP) $ 5,152 LIFO provision 58 Organizational Efficiency Costs 5 Adjusted gross profit (Non-GAAP) $ 5,215 YOY Change Gross profit $ (GAAP) $ 53 Gross profit % (GAAP) 1.0% Gross profit % 2-year stack (GAAP) 0.9% Adjusted gross profit $ (Non-GAAP) $ 61 Adjusted gross profit % (Non- GAAP) 1.2% Adjusted gross profit % 2-year stack (Non-GAAP) 1.3% $ in Millions Gross profit margin (GAAP) 28.1% Year over year basis point impact (GAAP) -1.3% Adjusted gross profit margin (Non-GAAP) 28.5% Adjusted year over year basis point impact (Non-GAAP) -1.3% 46

47 Reconciliation of Adjusted SG&A $ in Millions 4Q08 1Q09 2Q09 3Q09 4Q09 Selling general and administrative expenses (GAAP) $ 3,324 $ 3,482 $ 3,627 $ 3,613 $ 3,644 Acquisition-related amortization Alliance Boots transaction costs Adjusted selling general and administrative expenses (Non-GAAP) $ 3,298 $ 3,447 $ 3,592 $ 3,575 $ 3,604 YOY Change Selling general and administrative expenses $ (GAAP) $ 320 Selling general and administrative expenses % (GAAP) 9.6% Selling general and administrative expenses % 2-year stack (GAAP) Adjusted selling general and administrative expenses $ (Non-GAAP) Adjusted selling general and administrative expenses % (Non-GAAP) $ % Adjusted selling general and administrative expenses % 2-year stack (Non-GAAP) 47

48 Reconciliation of Adjusted SG&A $ in Millions 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Selling general and administrative expenses (GAAP) $ 3,741 $ 3,811 $ 3,920 $ 4,046 $ 4,004 $ 4,117 $ 4,203 $ 4,237 Acquisition-related amortization Alliance Boots transaction costs Adjusted selling general and administrative expenses (Non-GAAP) $ 3,702 $ 3,773 $ 3,868 $ 3,993 $ 3,952 $ 4,071 $ 4,149 $ 4,170 YOY Change Selling general and administrative expenses $ (GAAP) $ 259 $ 184 $ 307 $ 402 $ 263 $ 306 $ 283 $ 191 Selling general and administrative expenses % (GAAP) 7.4% 5.1% 8.6% 11.0% 7.0% 8.0% 7.2% 4.8% Selling general and administrative expenses % 2-year stack (GAAP) 20.6% 14.4% 13.1% 15.8% 15.8% Adjusted selling general and administrative expenses $ (Non-GAAP) Adjusted selling general and administrative expenses % (Non-GAAP) Adjusted selling general and administrative expenses % 2-year stack (Non-GAAP) $ 255 $ 181 $ 293 $ 389 $ 250 $ 298 $ 281 $ % 5.0% 8.2% 10.8% 6.8% 7.9% 7.3% 4.4% 20.1% 14.2% 12.9% 15.5% 15.2% 48

49 Reconciliation of Adjusted SG&A 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Selling general and administrative expenses (GAAP) $ 4,204 $ 4,284 $ 4,141 $ 4,249 $ 4,398 $ 4,497 $ 4,362 $ 4,286 Acquisition-related amortization Acquisition-related costs Hurricane Sandy DEA Settlement Costs Organizational Efficiency costs Adjusted selling general and administrative expenses (Non-GAAP) $ 4,144 $ 4,223 $ 4,058 $ 4,129 $ 4,248 $ 4,401 $ 4,240 $ 4,189 YOY Change $ in Millions Selling general and administrative expenses $ (GAAP) $ 200 $ 167 $ (62) $ 12 $ 194 $ 213 $ 221 $ 37 Selling general and administrative expenses % (GAAP) 5.0% 4.0% -1.6% 0.2% 4.6% 5.0% 5.3% 0.9% Selling general and administrative expenses % 2-year stack (GAAP) 12.0% 12.0% 5.6% 5.0% 9.6% 9.0% 3.7% 1.1% Adjusted selling general and administrative expenses $ (Non-GAAP) $ 192 $ 152 $ (91) $ (41) $ 104 $ 178 $ 182 $ 60 Adjusted selling general and administrative expenses %(Non-GAAP) 4.9% 3.7% -2.2% -1.0% 2.5% 4.2% 4.5% 1.5% Adjusted selling general and administrative expenses % 2-year stack (Non-GAAP) 11.7% 11.6% 5.1% 3.4% 7.4% 7.9% 2.3% 0.5% 49

50 Reconciliation of Adjusted SG&A 1Q14 Selling general and administrative expenses (GAAP) $ 4,379 Acquisition-related amortization 70 Acquisition-related costs 25 Hurricane Sandy - DEA Settlement Costs - Organizational Efficiency costs 19 Adjusted selling general and administrative expenses (Non-GAAP) $ 4,265 YOY Change Selling general and administrative expenses $ (GAAP) $ (19) Selling general and administrative expenses % (GAAP) (0.4%) Selling general and administrative expenses % 2-year stack (GAAP) 4.2% Adjusted selling general and administrative expenses $ (Non-GAAP) $ 17 Adjusted selling general and administrative expenses %(Non-GAAP) 0.4% $ in Millions Adjusted selling general and administrative expenses % 2-year stack (Non-GAAP) 2.9% 50

51 Reconciliation of Adjusted Operating Income Operatin g Income (GAAP) Acquisitio n Related Costs Hurricane Sandy Acquisition Related Amortization $ in Millions LIFO Provision DEA Settlement Costs Alliance Boots Fair Value of Warrant Adjustment Gain on WHI Sale Organizational Efficiency Costs Adjusted Operating Income (Non-GAAP) Fiscal 2010 Q Q2 1, ,151 Q Q Full Year 3, ,780 Fiscal 2011 Q ,035 Q2 1, ,309 Q ,055 Q4 1, (434) Full Year 4, (434) - 4,358 Fiscal 2012 Q ,005 Q2 1, ,238 Q ,016 Q Full Year 3, ,097 Fiscal 2013 Q Q2 1, (20) - 1,398 Q ,249 Q4 1, (8) - (34) ,103 Full Year 3, (34) (20) 13 4,674 51

52 Reconciliation of Adjusted Operating Income Operatin g Income (GAAP) Acquisitio n Related Costs Hurricane Sandy Acquisition Related Amortization $ in Millions LIFO Provision DEA Settlement Costs Alliance Boots Fair Value of Warrant Adjustment Gain on WHI Sale Organizational Efficiency Costs Adjusted Operating Income (Non-GAAP) Fiscal 2014 Q (19) ,103 52

53 Reconciliation of Adjusted Net Earnings Net Earnings (GAAP) Acquisition Related Costs Hurrican e Sandy Acquisition Related Amortization LIFO Provision $ in Millions Gain on WHI Sale Fair Market Value of warrants Adjustment DEA Settlement Costs Medicare Part D Organizationa l Efficiency Costs Alliance Boots Related Tax Adjusted Net Earnings (Non-GAAP) Fiscal 2010 Q Q Q Q Full Year 2, ,337 Fiscal 2011 Q Q Q Q (273) Full Year 2, (273) ,710 Fiscal 2012 Q Q Q Q Full Year 2, ,565 Fiscal 2013 Q Q (13) Q (48) Q (5) - (62) Full Year 2, (13) (110) ,982 53

54 Reconciliation of Adjusted Net Earnings Net Earnings (GAAP) Acquisition Related Costs Hurrican e Sandy Acquisition Related Amortization LIFO Provision $ in Millions Gain on WHI Sale Fair Market Value of warrants Adjustment DEA Settlement Costs Medicare Part D Organizationa l Efficiency Costs Alliance Boots Related Tax Adjusted Net Earnings (Non-GAAP) Fiscal 2014 Q (161)

55 Reconciliation of Adjusted Diluted EPS Diluted EPS (GAAP) Acquisitio n Related Costs Alliance Boots Share Issuance Effect Hurrican e Sandy Acquisition Related Amortizatio n LIFO Provisio n Fair Market Value of warrants Adjustment Gain on WHI Sale DEA Settlemen t Costs Medicare Part D Organizati onal Efficiency Costs Alliance Boots Related Tax Adjusted Diluted EPS (Non-GAAP) Fiscal 2010 Q Q Q Q Full Year Fiscal 2011 Q Q Q Q (0.30) Full Year (0.30) Fiscal 2012 Q Q Q Q Full Year Fiscal 2013 Q Q (0.01) Q (0.05) Q (0.01) (0.06) Full Year (0.12) (0.01)

56 Reconciliation of Adjusted Diluted EPS Diluted EPS (GAAP) Acquisition Related Costs Alliance Boots Share Issuance Effect Hurricane Sandy Acquisition Related Amortization LIFO Provision Fair Market Value of warrants Adjustment Gain on WHI Sale DEA Settlement Costs Medicare Part D Organizational Efficiency Costs Alliance Boots Related Tax Adjusted Diluted EPS (Non-GAAP) Fiscal 2014 Q (0.17)

57 Reconciliation of Free Cash Flow $ in Millions 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 Cash Flow from Operations (GAAP) $312 $1,428 $1,519 $852 $1,168 $595 $1,056 $925 Capital Expenditures (GAAP) (638) (454) (442) (393) (304) (220) (262) (228) Free Cash Flow (Non-GAAP)* ($326) $974 $1,077 $459 $864 $375 $794 $697 *Free cash flow is defined as net cash provided by operating activities in a period minus additions to property and equipment (capital expenditures) made in that period. This measure does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments for future business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statements of cash flows. 57

58 Reconciliation of Free Cash Flow $ in Millions 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Cash Flow from Operations (GAAP) $1,165 $886 $1,230 $362 $809 $1,007 $1,847 $768 $601 $1,198 $1,379 $1,123 Capital Expenditures (GAAP) (273) (196) (230) (514) (419) (304) (379) (448) (336) (245) (293) (338) Free Cash Flow (Non- GAAP)* $892 $690 $1,000 ($152) $390 $703 $1,468 $320 $265 $953 $1,086 $785 *Free cash flow is defined as net cash provided by operating activities in a period minus additions to property and equipment (capital expenditures) made in that period. This measure does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments for future business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statements of cash flows. 58

59 Reconciliation of Free Cash Flow $ in Millions 1Q14 Cash Flow from Operations (GAAP) $133 Capital Expenditures (GAAP) (364) Free Cash Flow (Non- GAAP)* (231) *Free cash flow is defined as net cash provided by operating activities in a period minus additions to property and equipment (capital expenditures) made in that period. This measure does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments for future business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statements of cash flows. 59

60 Reconciliation of FIFO Inventory $ in Millions except as indicated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Total LIFO Inventory $8,231 $7,347 $7,004 $7,036 $7,821 $7,253 $6,881 $6,852 $7,729 YOY % Change 4.1% (3.4%) (7.3%) (12.5%) (5.0%) (1.3%) (1.8%) (2.6%) (1.2%) LIFO Reserve 1,633 1,704 1,764 1,897 1,952 2,024 2,144 2,136 2,194 Total FIFO Inventory $9,864 $9,051 $8,768 $8,933 $9,773 $9,277 $9,025 $8,988 $9,923 YOY % Change 5.7% (0.4%) (3.4%) (7.3%) (0.9%) 2.5% 2.9% 0.6% 1.5% # of Drugstores 7,812 7,841 7,890 7,930 8,058 8,072 8,097 8,116 8,200 LIFO Inventory per Drugstore (000 s) 1, YOY % Change 1.9% (5.3%) (9.3%) (14.4%) (7.9%) (4.1%) (4.3%) (4.8%) (2.9%) FIFO Inventory per Drugstore (000 s) 1,263 1,154 1,111 1,126 1,213 1,149 1,115 1,107 1,210 YOY % Change 3.6% (2.3%) (5.6%) (9.3%) (4.0%) (0.4%) 0.4% (1.7%) (0.2%) 60

61 Certain Definitions & Assumptions CERTAIN ASSUMPTIONS: Unless the context otherwise indicates or requires: This presentation assumes constant currency exchange rates after the date hereof based on current rates; References to the combined company and pro forma combined financial and other information assume that Walgreens has elected to exercise its option in Step 2 during the period in 2015 when it has the right to do so; Walgreens transaction with Alliance Boots does not include the benefit of Alliance Boots minority interest in Galenica Ltd., a Swiss healthcare group, so Walgreens shareholders will not benefit from the financial performance of Galenica Ltd. even though Alliance Boots proportionate interest in their profits is reflected in Alliance Boots financial statements for periods prior to May 10, 2013; and All financial goals assume no major mergers and acquisitions or other strategic transactions. Trading Profit - Profit from operations before amortization of customer relationships and brands, exceptional items and share of post-tax earnings of associates and joint ventures Historical Alliance Boots Financial Information Alliance Boots audited consolidated financial statements for the years ended March 31, 2013 and 2012 were filed as Exhibit 99.1 to the Walgreen Co. Form 8-K filed on May 15, Such financial statements of Alliance Boots were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) and audited in accordance with auditing standards generally accepted in the United States. All descriptions of the company s agreements relating to Alliance Boots and the arrangements and transactions contemplated thereby in this presentation are qualified in their entirety by reference to the full text of the agreements, copies of which have been filed with the SEC. See the Company s Form 8-K filings on June 19, 2012, August 6, 2012, September 10, 2012 and September 13, All descriptions in this presentation of the agreements relating to the strategic long-term relationship with AmerisourceBergen announced by the Company and Alliance Boots on March 18, 2013 and the arrangements and transactions contemplated thereby are qualified in their entirety by reference to the description and the full text of the agreements in the Company s Form 8-K filing on March 20,

62 Cautionary Note Regarding Forward-Looking Statements Cautionary Note Regarding Forward-Looking Statements. Statements in these materials and the accompanying presentation that are not historical, including, without limitation, estimates of future financial and operating performance, including the amounts and timing of future accretion and synergies, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of Words such as "expect," "likely," "outlook," "forecast, "would," "could," "should," "can," "will," "project," "intend," "plan," "goal," target, "continue," "sustain," "synergy," "on track," "believe," "seek," "estimate," "anticipate," "may," "possible," "assume," variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those relating to our commercial agreement with AmerisourceBergen, the arrangements and transactions contemplated by our Framework Agreement with AmerisourceBergen and Alliance Boots and their possible effects, the Purchase and Option Agreement and other agreements relating to our strategic partnership with Alliance Boots, the arrangements and transactions contemplated thereby and their possible effects, the parties' ability to realize anticipated synergies and achieve anticipated financial results, the risks associated with transitions in supply arrangements, the risks associated with international business operations, the risks associated with governance and control matters in minority investments, whether the option to acquire the remainder of the Alliance Boots equity interest will be exercised and the financial ramifications thereof, the risks associated with equity investments in AmerisourceBergen including whether the warrants to invest in AmerisourceBergen will be exercised and the financial ramifications thereof, changes in vendor, payer and customer relationships and terms, changes in network participation, the implementation, operation and growth of our customer loyalty program, changes in economic and market conditions, competition, risks associated with new business areas and activities, risks associated with acquisitions, joint ventures and strategic investments, the ability to realize anticipated results from capital expenditures and cost reduction initiatives, outcomes of legal and regulatory matters, and changes in legislation or regulations. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, which is incorporated herein by reference, and in other documents that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, Walgreens does not undertake, and expressly disclaims, any duty or obligation to update publicly any forward-looking statement after the initial distribution of this presentation, whether as a result of new information, future events, changes in assumptions or otherwise. 62