Rick Hans - Divisional Vice President, Investor Relations & Finance Greg D. Wasson - President and Chief Executive Officer Wade D. Miquelon - Chief Financial Officer and Executive Vice President

John Heinbockel - Goldman Sachs Lisa Gill - JPMorgan Scott Mushkin - Jefferies & Co. Andrew Wolf - BB&T Capital Markets Mark Miller - William Blair Edward Kelly - Credit Suisse Steve Halper - Thomas Weisel Partners John Ransom - Raymond James Meredith Adler - Barclays Capital

Good day everyone and welcome to the Walgreen Co., Fourth Quarter 2009 Earnings Conference Call. As a reminder, today's call is being recorded and I would like to turn the call over to Rick Hans, Divisional Vice President of Investor Relations and Finance. Please go ahead.

Thank you Mark and good morning everyone. I apologies for the little bit of a late start here, little technical problem. Welcome to our fourth quarter conference call. Today, Greg Wasson, our President and CEO will discuss the quarter's highlights and the macro environment. Wade Miquelon, Executive Vice President and Chief Financial Officer will detail the fourth quarter financial results before we began taking your calls. When we get your questions, please limit yourself to one question and a follow up so that we may give an opportunity to as many investors as possible during our limited time. You can find a link to our webcast to Investor Relations at walgreens.com. After the call, this presentation will be archived on our website for 12 months. We are also making the call available as a pod cast for the first time. You can download that too at our Investor Relations website. Certain statements and projections on future results made in this presentation 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 discussion of factors as they relate to forward-looking statements. Now I will turn the call over to Greg. Greg D. Wasson: Thank you Rick and thank you everyone for listening to our call. We appreciate your continued interest in Walgreen's. Today I'm going to review our progress this quarter, address the macro environment including the economy and healthcare reform and update you regarding some of the innovative programs we are implementing across the company. In the fourth quarter we have posted solid result in a difficult economy, we have seen the first net financial benefits from our restructuring initiatives. Net sales for the quarter were $15.7 billion, up 7.6%. Consumers are concerned about rise in unemployment, keeping their homes and paying down their credits cards. They are focused on value and are buying needs versus one, but even in this challenging environment our people delivered record sales. Net earnings were $436 million or $0.44 per diluted share compared to $443 million or $0.45 per diluted share a year ago. For the fiscal year, net sales were record $63.3 billion, up 7.3%. Net earnings were $2.01 billion or $2.02 per diluted share. In the fiscal 2008, net earnings were $2.16 billion or $2.17 per diluted share. Cash flow from operations in fiscal 2009 was up 35% over year ago, showing a record $4.1 billion. Looking back on fiscal 2009 we reported another record sales here, which was marked the one of the most important strategic and operational transformations in our company's 108 year history. And we did it while navigating through the most severe economic downturn in decades and preparing for potentially the biggest reform of our healthcare systems since Medicare. As a result, we have adjusted our retail model to respond to what we believe will be last in changes in consumer behavior. In addition we're positioning our company for healthcare changes that will place a greater focus on preventing and managing chronic disease and promoting heath awareness. Let me take a few minutes to talk about healthcare reform and the context of our strategy. With nearly 170 million Americans currently insured by their employer. Corporate America will undoubtedly continue to play a vitally important role in healthcare systems. And most employers want to including Walgreens. We support the Obama's Administration's guiding principles of improved access, greater affordability and higher quality as part of any reform platform. And we agree with the need to shift, focus to preventing and managing chronic disease and emphasizing health and wellness. We are on the frontline of healthcare with 68,000 professionals, who can impact people's behavior through direct face-to-face interaction. Greater illustration of that is the current seasonal flu in H1N1 pandemic. We've already provided more than twice as many seasonal flu shots to patients this fall compared with the total we delivered during all of last year's flu season. And all that is thanks to our nearly 16,000 pharmacies and Take Care health providers were qualified administer flu shots. No other retailer has that many health professionals immunizing the public. This is one example of how we are advancing the profession of pharmacy as viable resource on healthcare's front line. They are going beyond the dispense in a medication to providing valuable healthcare service. Our platform for delivering Pharmacy and health and wellness services now extends to 7000 drug stores, especially Pharmacy and Home Infusion Network and Work-side Health centers and retail clinics. With that foundation, we are taking Walgreen directly to employers, government entities, Manage Care Companies and TVM's as a provider of Pharmacy and health and wellness services. Our recent agreement with Caterpillar is example how we are doing that, as a result of working directly with CAT, we gave them proprietary, transparent pricing to better manage their cost and improve overall health outcomes. And we're certainly encouraged by the traction this approach is getting in the market. Many other companies are talking to us about similar programs because of this compelling offer. In addition to taking our services directly to employers and other third parties, we're also going directly to consumers with our Prescription Savings Club. This program is offering discounted pricing on branded Generic Medication to nearly 2 million members today. Another initiative we announced today, we'll promote wellness and better treatment of chronic disease through a commitment to expand 90 day prescriptions at our retail pharmacies. We've worked with positions, employers, manage care and PBM's to bring a 90 day retail option to a large population of patients across our national network of 7000 pharmacies. Patients want a choice of getting prescriptions either through the mail or through local community pharmacy. And when they have that choice, more often than that they choose a retail pharmacist. That increases patient interaction with their pharmacist and study show that interaction leads to great inherence to medications. Good example; the willingness of patients to try 90 day prescriptions can be found under the Medicare Part D plan. Part D has included a 90 day at retail option since its conception. But today, more than 24% of our Part D beneficiary perception volume is filled in 90 day quantities at our retail pharmacist. That takes into account that these 90 day prescriptions fill three times the volume of a 30 day pill. When a 90 day retail option is added to a prescription plan, total 90 day utilization increases. That benefits overall healthcare spending and lowers cost for both the patients and the payer. It's a great message for improving health outcomes and spending healthcare dollars more effectively. Whether patients want retail or mail service, we can serve them to whichever channel they desire. Not like that they're doing a progress of our business strategies. Our success is evolved from the careful implementation of leveraging the best store network in America, enhancing the customer experience and achieving major cost reductions and productivity gains. First leverage in our stores after; we reached our goal 3000 stores in the year 2000 we set a new goal ahead 7000 stores by 2010. On Thursday, we'll officially celebrate achieving that net milestone with the grand opening of our 7000 store located in Brooklyn, New York. With a total of 7042 drug stores as of today, we are once again the largest drug store chain in the country in terms of both store count retail revenue. We are also now in all 50 states with three Alaska stores opened this past summer. We reached our goal mostly through organic growth, given us an incredible foundation to build upon and especially how younger stores are. For fiscal 2009, we registered a net gain of 554 stores including 70 acquisitions compared with 561 to previous fiscal year. Fiscal 2010, we expect organic store growth of between 4.5 to 5%. With our current growth strategy, we are now balancing the pace of new store openings with our commitment to improving our existing store base and enhancing the customer experience. Allowing stores to mature and drive higher ROIC the right strategy in this economy. But it doesn't mean we are walking away from growth opportunities. We see opportunities grow market share through continue organic store growth, driving comp store sales and pharmacy file buys. We'll also continue evaluating potential acquisitions that reinforce our core. Even before store growth slowed this quarter, we made significant progress on expense control. Slowing store growth will contribute even more to SG&A growth concerned going forward. In the fourth quarter, SG&A was helped by rewiring for growth average and in fact... and the fact that we tightly manage store operating expenses. We were also helped by 149 stores opened in this quarter, down from 199 opened the year ago period. Moving to our second strategy of reinventing the customer experience; we are currently rolling out our customer sense of retailing format more than 400 stores intact. We are pleased with the results from our CPR store so far. Stores have been side lined, let's clutter in a brighter look. We expect CCR will not only improve comparable store sales and customer experience, but we also increase the number of customer visit and basket size. As we have said, CCR gives us four way win; it helps us improves sales, it takes work out of the stores, it reduces capital deployed and it provides a better customer experience with greater relevancy and efficiencies. A key category that we are adding to our stores is beer and wine. We expect this category to rollout over the next 12 to 18 months. And although beer and wine will comprise less than 1% of total shelf space in typical store. We believe it will increase basket size and drive traffic in our stores. If you didn't take the time to check in out this morning, take a look at our redesigned Walgreens.com site, which we launched about a month ago. It offers a much improved online experience including new convenient features, product merchandising, integrated health content and a new mobile version. We also feature seven health shops that bring together products, services and latest news and information. And lastly, our rewind for growth initiative remains on track to deliver a $1 billion and annual EBIT cost savings beginning in fiscal 2011. We have a relentless focus on cost reduction and productivity gains and that will continue. When you combine our SG&A control with our goals for gross profit, dollar growth we have a real opportunity to expand our operating margins. As you've heard, our investment is focused on the customer experience, giving more from our core store base and bring innovative programs to the market, positioning us for the new economy and healthcare reform. Tying all those together is a new branding campaign we launched about a week ago. Our new branding includes the tagline, Walgreen, there is a way. This reflects our customers' desire for someone to help make life easier for them. They want a little reminder, a little inspiration to live all around better healthier lives. Walgreen's will do that by providing simple solutions or small improvements such as flu shots to stay healthy for the convenience of photo services to connect with family. You'll see and hear a lot from this campaign in the weeks and months ahead. If you want to see the commercials on demand check them out on YouTube. We're providing a link on our Investor Relations website directed to the videos. Before I turn the call over to Wade, I'd like to mention a couple of recent additions in our management team. Jason Dubinsky, recently joined us as Divisional Vice President and Treasurer. Jason is leading our Treasury department and corporate risk management practice; with a strong background in retail and consumer sectors having worked closely with corporate clients and those industry as well with Goldman Sachs. And also Tim Theriault, joined us as our new Senior Vice President and Chief Information Officer. Tim joins us from Northern Trust Company and brings a unique combination of leadership, innovation and business intellect, with a background of both as technology and banking executive. I know, both Tim and Jason will do very well in the new positions. Now Wade will update you on our financial results in the quarter. Wade. Wade D. Miquelon: Thank you Greg. Let me get right into the financial details. In the quarter, net sales increased 7.6%, while our total comp sales rose 2.4%. Prescription sales rose 9% and represented nearly 67% of sales for the quarter. Prescription sales and comp stores rose a solid 4.5%. We filled 182 million prescriptions during the quarter, an increase of 9.1% that includes a benefit of 1.4 percentage points from patients filling 90 day rather then 30 day scripts. On a comp store basis, the number of prescriptions increased 5.9% and that includes the benefit of 1.8 percentage points from patients going 90 day versus 30 day scripts. We exceeded by 5 percentage points, the industry wide pharmacy growth rate excluding Walgreen's as reported by IMS. Net earnings in the fourth quarter were $436 million or $0.44 per diluted share and that included the impact of $0.03 from rewiring cost and $0.07 in savings associated with the company's rewiring for growth initiatives, this reflects the 1.5% decrease in the 400 and $43 million or $0.45 per diluted share in the same quarter year ago. But recall the last year's quarter included the benefit of a vacation accrual adjustment of $79 million or $0.05 per diluted share. In addition, the quarter included the impacts of negative $0.01 per dilute share for the LIFO reserve, negative $0.01 per diluted share for interest expenses versus year ago, and a positive $0.01 per dilute share from a lower tax rate. For the fiscal year, net sales increased 7.3% to $63.3 billion. From that earnings in the year it was $2.01 billion or $2.02 per diluted share and that includes the impact of $0.16 in cost and about $0.16 in savings associated with the company's rewiring for growth initiatives. Net earnings reflected 7% decrease from last year and also include the impact of last year's $0.05 per diluted share benefit in the vacation accrual adjustment. Negative $0.04 per diluted per share for this year's LIFO reserve, negative $0.04 per diluted share versus year ago for interest expense, and a positive $0.02 per diluted share from a lower tax rate. Total prescription dollar sales increased 7.8%, while the number of scripts increased 6.9%. Top frond end sales were down slightly for this fiscal year. Total comp sales increased 2% and comp scripts increased 3.6% higher than the previous year. Gross profit in the fourth quarter was $4.3 billion at 7.7% increase versus the year ago quarter. Gross margin was up 10 basis points compared with the year ago quarter to 27.7%. This includes the LIFO provision of $48 million in this year's quarter versus the provision of $24 million in last year's fourth quarter, helping overall margins with an increase in retail pharmacy margins through Generics. Negatively impacting margin for non-retail businesses, frond end product mix, a higher LIFO provision and CCR markdowns. For the fourth fiscal year, our gross profit declined 40 basis points, while the same factors replay the increases in retail pharmacy margins didn't completely offset the negative factors. Our focus on cost control continued in the fourth quarter as we recorded an increase in SG&A dollars of 9.6% and this includes 2.6 percentage points due to last year's vacation accrual adjustment and 0.9 percentage point for rewiring for growth cost. On a two year stock basis, SG&A dollar growth for the fourth quarter declined from 23.4% to 14.1%. As Greg showed you, slowly new store openings will continue to benefit SG&A growth as well as the significant cost benefits resulting from rewiring for growth. We'll also have incremental SG&A expenses to the CCR store resets as we've previously discussed. And this next chart summarizes the savings and cost for rewiring for growth restructuring charges for fiscal year 2009. $0.15 in savings were offset by $0.16 in cost for the fiscal year. Total rewire expenses for the year were approximately $257 million. So you can get approximately a $140 million in fiscal 2010. We're on target for our net pretax savings of about $500 million in fiscal year 2010 and a net pretax savings of a $1 billion in fiscal 2011. We talked about sales, margins and earnings. So let's review some additional income statement details now. The LIFO provision was $48 million versus $24 million in the fourth quarter of 2008. Our LIFO provision this year was 2% compared with the provision of 1.28% in fiscal 2008. We are expecting a LIFO provision for 2010 to be approximately 2%. Next there was $51 million in restructuring cost in the quarter, including $23 million in consulting and other costs, $19 million in SKU discontinuation and $9 million in costs associated with workforce reductions. For the fiscal year, we incurred $63 million and write downs related to SKU discontinuation and we are about 70% through that process. Net interest expense was $23 million compared with $7 million last year, through the issuance of $1 billion bond in January of 2009. That interest expense benefited from a fixed rate to floating rate swap executed in July of 2009 on the $1.3 billion note issued at same month. Effective tax rate was 35.8% compared with the rate of 37.1% in the year ago period. We expect the tax rate of approximately 37% in fiscal 2010. Accounts receivable, inventory and accounts payable are the components of working capital that most indirectly impact. The net some of these as a percent of sales has improved by 14.1% in the quarter, primarily due to the inventory improvement. Total inventories were down $460 million or 6.3% against total sales growth of 7.6% and a total drug store growth of 8.6% LIFO total inventories on a per store basis fell 11.1% in the most recent quarter. Controlling inventory continues to be a top priority. And even with lower inventories our in stock conditions improved in the fourth quarter compared with a year ago. And as you are aware, the growing inventory helps cash. Our net cash position at the end of the quarter was $236 million which compares favorably with a net cash of $52 million at the end of this third quarter and a net debt of over $1.5 billion at the end of the first quarter. Cash and cash equivalents and short term investment totaled $2.6 billion and long term debt totaled to $2.3 billion. Our financial flexibility and liquidity are in very good shape, and our balance sheet should only strengthen as we slower store growth, control inventory and drive cost savings over the next few years. The fiscal year 2009 we invested $1.9 billion in additions to property, plant and equipment versus $2.25 billion last year. The fiscal 2010, reducing the number of store openings will result in lower CapEx for our new stores but we will increase our investment's persistence and other improvement in existing stores. In total we anticipate fiscal 2010 capital expenditures to be approximately $1.6 billion. Now let me cover our cash flow performance. These graphs demonstrate the improvement in cash that we have generated from our store operations and improved working capital. Our cash flow from operations in the quarter increased to $852 million from $548 million a year ago, a 55% increase. Meanwhile, free cash flow this quarter stood at $459 million compared with a negative $24 million a year ago. For the fiscal year cash flow from operations increased 35% to a record $4.1 billion, and free cash flow for the year increased a 168% to a record $2.2 billion. We've planned to continue returning cash to our shareholders through a combination of dividends and buybacks. We are developing a specific cash policy that will compliment our business plan. That policy will give all of stakeholders more clarity regarding our capital allocation decisions and principles going forward. So, looking ahead I am very optimistic about Walgreen's future. We have many opportunities starting with our three core strategies, which is leveraging the best retail network in America, driving CCR at the beginning of our journey towards a new customer focus and realizing the benefits of rewiring for growth. Walgreen is very well positioned to merge in this economic climate as a leader in pharmacy and health and wellness services. For healthcare payers (ph) accessibility, cost efficiency and better outcomes are the top priority. And we are able to step up here and help. On a consumer side, growing companies with winning strategies and a strong balance sheet can gain loyal customers in unprecedented ways during down economies. And we intend to be one of those strong companies and a true winner. For another quarter of strong cash flow and we are positioned to take advantage of growth opportunities provide attractive returns. We believe the initiatives and progress that Greg and I have outlined this morning will benefit investors through accelerated earnings growth, the continued dividend purchase... dividend increases and share repurchases. No doubt, we do face some headwinds, for just pharmacy reimbursement and an AWP reduction for medicate brand name drugs that could impact us by as much as 80 to $90 million this next fiscal year. We also face the slowdown in generic introductions for the next one or two years and an uncertain economy. But we also have key strategies and wonderful assets that give us unprecedented opportunities and I remain very confident. So I will close by saying, we are committed to return double-digit earnings growth as soon as possible and improving ROIC as part of our overall plan to create long term shareholder value. And I hope I've conveyed that message to you today. And now I'll turn the call back over to Rick.

Thank you, Wade. Mark that concludes our prepared remarks. So, we're now ready to take questions.

Thank you very much. (Operator Instructions). Our first question today will come from John Heinbockel with Goldman Sachs. John Heinbockel - Goldman Sachs: Hey guys, couple of things. How far are we through the CCR related clearance of SKU rationalized inventory and how much more is to go?

Hey John, Greg. We're probably long more than 70% through and feel pretty good about that as you know we've kind a taken early strategy to where we took the markdowns and did them within the departments so pretty good. We're about little over 70%. John Heinbockel - Goldman Sachs: All right. Then secondly, when you look at the -- I mean sort to sounds like you think pharmacy margins could be down over the next year. But I would also think maybe front-end could be up. And in an overall maybe end up closer to flat is that that sort of a fair take on the two parts in the business.

Well I think certainly on the front-end, we're going have to with the tight consumer and cautious consumer, we're going have to make sure we stay focuses on swing doors and really drive value. So we got to balance that obviously. We think we've got some good opportunities there with private brand CCR what we're doing there as we think we've got lot of the balance what we may have to drive value and drive traffic. As far as pharmacy margins, I think that certainly with the headwinds that Wade mentioned with the AWP reduction, we're going to be tackling that and stands the growth on the commercial side. We feel like we've made good progress most of the commercial payers realized that the we should be need to keep us hold states, kind of state by state we'll be working with those. So we see that how that comes down.

Yeah. I just say John I think you have the balance that obviously there is some reimbursement pressure but I think we've got also good traction the business. We've got good services as we've talked things like Blue-Shots when in the overall margin we've made good progress in cost control and across the border and as we moved for wire -- stronger. John Heinbockel - Goldman Sachs: One final thing for me, how do you guard against picking too much cost out to the point that it impacts service I mean today I don't think that's happened but how do you guard against that?

Yeah, good question John. By just staying on top of the surveys and our employee's surveys, the customer surveys, we feel good there. We're doing obviously coming back from pharmacy. We've got good satisfactory responses there. Our wait time has improved from last year's I mentioned a couple of weeks ago we've actually cut our wait time pretty dramatically in pharmacy. So actually the store operators and folks are doing a good job in maintaining service levels where we take expense down.

I'll just remind you our transmission is to rewire for growth does include the growth work and the whole key of this thing is really about reengineering the way we do work. I think this is example right, how can we not only be more consumer centric and provide a better experience but do those things in a way which take work out of the stores for employees and get into double, triple, quadruple wins so, I think its really is around reengineering, we've done a lot of that and we have to do a lot more. John Heinbockel - Goldman Sachs: Okay. Thanks guys.

Our next question comes from Lisa Gill JPMorgan. Lisa Gill - JPMorgan: Thanks very much and good morning. I was just wondering if you could comment on the capital deal and may be just take us a little bit through of how that works and what this proprietary pricing is and then secondly as we think about the 90 days script at retail, is that more profitable for you than a 30 day script?

Yeah, Lisa, As far as caterpillar deals I'd said the need thing there is that trust going directly to an employer to give them wide proprietary pricing and I think that's what's really excited about that those are the two big points that we went directly to an employer and because of that, we were able to give them our proprietary pricing and I think we're curious as I said because we're getting lot of interest in that. Switching to the 90 day, I think this is really a win-win-win. It's great for patients, there's definitely a market out there for it we know that in Part D and through our prescription savings Club Card there's Part D 90 day retail and mail option has been available consumption, we're up to as I said 23-24% penetration there, so consumers want it and the payers are beginning to see the real value. So, it's been a good profession, good payers, good for us and obviously as far as the margin when you get to recall when we take the cost down of three bills versus one bill with the 90 days. So we expect margins to be pretty good. Lisa Gill - JPMorgan: Okay. So just I understand for the margins generally will be better on the 90 days script than the 30 day script. And then as you think about these relationships; are you signing any preferred relationships towards any of the managed care companies around 90 days script to try to drive volume to a Walgreen store?

I'll handle the margin complexion, you know obviously ever situation is going to be different but we, as Greg said I think we can provide a better experience for patience to better cost for the payer and be fine on our end. With respect to managed care certainly we'll be working broadly with managed care PBMs and other employers direct to make sure that they have the opportunity to avail of 90 days.

But I think Lisa as far as any preferred relationships that's and don't really just to make that we offer this to all pairs on a broad approach. So if somebody wants to prefer that's great, but we really wanted just to make sure that we can this to all payers regardless of how they want to construct their network. Lisa Gill - JPMorgan: Okay. And then just one follow up question then, have you talked about on the margins on pharmacy? The fact that after tax is out of the market and some of the generic manufacturers are raising price, are you taking that into accounting in your previous comments around generic margins.

Yeah I think we have pretty sophisticated model obviously is a very complex matrix of lots different drugs, lots of different payers, lots of different parts of the country but yeah that's all factored in. Lisa Gill - JPMorgan: And when you seeing an impact form that from last manufacturers in the market?

No I mean it's all manageable. Lisa Gill - JPMorgan: Okay, great. Thank you.

And our next question will come from Scott Mushkin with Jefferies. Scott Mushkin - Jefferies & Co.: Hey thanks guys and obviously a real solid quarter. As I hoping to you do the tag on the last two questions that were asked; number one I really didn't understand the margin answer for 2010 the way I'm canceling it out with 500 million of savings may be give back of 80 to 90 is that we can earn 240 to 250 next year. And I'm just trying to understand the margin pressure seem to you guys to hedge (ph) that margins might be down both in the farm Front-end in the pharmacy, there's only be give us a little clarity on that and then I have followed up on the if you give us question if I could.

Yeah, I would say obviously it's a lot more complex in just to 500 benefit and then the 80-90 AWP. I mean reimbursement pressure there are other pressures, there is still AMP issue pending and of course there's a lot of payers they are under pressure. So, there are other reimbursement pressures beyond that now there always has been and it's kind of always it's always every year it's always struggle, but I wouldn't want to say that's the only reimbursement pressure, I think Greg was leading to in the Front-end and I think we have a wonderful opportunity to grab a much bigger basket where traffic there might be some balancing overtime. I want to make to sure if the value equation is right. So, we'll be looking also at total gross profit dollars deliver there by the becoming more relevant in driving a lot more volume versus just focusing on the gross profit percent. It doesn't mean that we will definitely go down but again I think what we want to do over time is to become more relevant drive, much more volume through there and if we can maximize those profit dollars that might be a better way to go. Scott Mushkin - Jefferies & Co.: So, as we look in next we notice in the marketplace you guys are reducing your prices pretty actively with the green tags in the front end, I mean are we doing it in a substantial uptake in front end sales to maintain that dollars that you mentioned?

Yeah Scott. Greg. As I said retail obviously is balances, is balancing margin in traffic, so we are getting sharper on value guidance in a. Some key value items within storage negative refresh, right, we have to do that to make sure we stay relevant. At the same time, we've got to manage as we always do, we have to drive private brand to offset that. And believe me that's what we will be doing as focusing on that right balance.

But I think it’s also, it's a portfolio Scott. There are items where we just weren't competitive on key driving items and we are getting competitive there is a lot of other items where we referable of the pricing than anyone. And that quite does make a lot of sense for format so, I think its really making sure that we play the portfolio in the smartest way to be relevant on items where we have to be get on relevant. Scott Mushkin - Jefferies & Co.: Okay, now switching to less then 90 day script issue that Lisa was talking about, I mean you guys have always said that 90 day scripts and I think its always been common in the retail industry are less profitable then 330 days and something changed there because that's kind of how Walgreen and everyone else has always presented it and I was just wondering if you can clarify that margin issue when you got from 30 to 90.

No Scott, its Greg. I think again when you look at the gross profit dollars of a 90 days script versus a 30. And then you look at the cost to fill reduction obviously for two fill from three fills to one, we fill pretty choppy. We've launched this if you recall back in early 2003, 2004 maybe with advantage 90 to WHI. And that's when it really began 98 retail really began to take off. And then as you know we worked hard to get in the partly plans. And we fell confident that if a patient wants a 90 day quantity and it want to build to get retail then we should be offered. We feel that we're okay on the margin.

And I can also tell you there is a very, very big market out there. People that are getting 90 day at mail who wished they have the opportunity to get at retail. So obviously for them to be able have the opportunity in the choice as we've said before more often than not they choose retail and they have that choice. That incremental business for us is a very good business. But what we want to do is really be able to be agnostic in terms of 30 day, 90 day drive through in-store mail you name it and give the patient and the payer the choice which is right for them whatever that might be. Scott Mushkin - Jefferies & Co.: And then one final then I'll give it out, deal restricted in other words people have to fill it Walgreen or no?

No. Scott Mushkin - Jefferies & Co.: Or is it preferred in other words?

I'll give you a simple, obviously we don't want to, we're not going to go and there's lot of detail on our proprietary pricing, but the general constructive is that, the more services the CAT avails the Walgreen's can offer and the more volume that comes through the better the pricing we can offer. So, what we're really trying to do is incant a win-win. Scott Mushkin - Jefferies & Co.: So, it's similar to CDS maintenance choice and it's a preferred network?

No, it's not preferred it's just it where a base we just consents the pricing again for the more volume that comes to the network.

I think with Caterpillar, they're certainly going to try to encourage folks to use Walgreen to take advantage of the pricing we're giving them but it's not an excluded network dynamics by any means and that's what we're not interested in. Scott Mushkin - Jefferies & Co.: Right, thanks. I'll give up the floor. Thanks for taking my questions.

And our next question will come from Andrew Wolf, BB&T Capital Markets Andrew Wolf - BB&T Capital Markets: Good Morning and congratulation on the quarter. I just wanted to ask you a follow-up on a first on can you update sort of the cost to do the remodels that you spoke to last quarter, you said you learned, get some learnings on that. If you could where that might end, also in the flipside the kind of sales lift either you're getting or you expect how much of that can be offset because last quarter most less cam away try to figure out what the net impact to that would be on this year's earnings.

The cost we said before is between 30 and 50,000 per store. So I think we've estimated that pretty accurately. In terms of the sales lift, we haven't given a number but I would say that the payback period from what we're seeing and projecting is pretty quick. So if you take top 5000 storage comes 40,000 you get to around a couple of $100 million. But we're going to see, we believe in the fiscal year benefits in terms of sales uplifts cost reductions that should offset most or all of that. So we've kind of basically call that a wash for the most part. And again, because the payout period it's a very high ROIC making these current stores more productive is really this simple greatest liver we can pull on ROIC.

Andy as far as the cost, the good thing is now that we're in a couple major markets like Dallas and Houston where we can really leverage scale the reset teams where looking for to seeing what we really can do as far as the efficiencies drive that cost down. Andrew Wolf - BB&T Capital Markets: And are these remodels I know you still have a pretty small sample size but I did still on the sales left still tracking above what you had originally planned?

Yeah, we're still encouraged with what we're seeing. Andrew Wolf - BB&T Capital Markets: Okay and I just wanted to flip on the, to one follow up on the Caterpillar deal, some of the industry consultants have characterized that as market share driven, but discount pricing and I'm just trying to understand what that means for Walgreen's particular since there's a large cost component removed by not using a full service PBM how the, what of that using part of that exclusion of that flow of some of the profit dollars, were that leads Walgreen's obviously or at least caterpillar released Walgreen's...

Yeah, again I think the need things is because we were direct to CAT we were able to give them pricing that is good there pricing for both them and is as weighted is based on volume, it's the first time where instead of giving a price without the opportunity to grow volume or other services that we've been able to, we're going to arrangement we're too good for CAT and for us. So it's they're realizing the savings because there is no one between they and us. Andrew Wolf - BB&T Capital Markets: So your contribution dollars, they're going to go up exponentially or linearly with market share? John Heinbockel - Goldman Sachs: Well I wouldn't comment exactly. I would just say I would reiterate with what Greg said which is if it good deal for us and it's a good deal for CAT. It's a true win-win.

Great. Thank you.

And Mark Miller with William Blair has question. Mark Miller - William Blair: Hi good morning. Follow-up to prior question on remodels, about how many of the new format stores do you think you might convert in the next fiscal year. I know your plans been 5000 but how does that gets spread across fiscal'011. Then if you look at that expense drag, net of the sales left, how large of a negative might that be for remodels versus the benefit to earnings that you are slowing the store growth in this next year, could those two balance out or with a tip one way or the other.

You know we are still identifying the number of stores but we have tried taking somewhere around 4000 and as you know there is a very low end 3500 to 5 on the very upper end but we've got a lot new stores coming out, they don't need to remodel we have certain other formats that it really doesn't make sense to. But what I would say Mark compared to the previous comment we think it to the most part that will balance out. Right, so might go 20-30 million one way or another it might but for the most part we believe we will balance out because of the list we are getting, some of the cost efficiencies and some of the other work we are doing around, CCR to be more in the promotion we are facing et cetera so, lets say, I think its largely going to be a... Mark Miller - William Blair: But my question weighed with also factoring in the benefits of earnings as you slow the store growth? Does that and imply that it becomes a net benefit when I take those two dynamics together?

There'll be some benefit in slowing store growth so, we haven't put a number out there but obviously that really compounds over time. So, as we go from 8 to 9% to 5% you get some benefit but over time that it really starts to roll through so even stronger the following year, much stronger the year after. But yeah there could be some incremental benefit from that. Mark Miller - William Blair: Okay, thanks. My second question is, looking at the inventory impressive management overall, how much of that is coming from skew rationalization, how much is it from other working capital initiatives power, I'm wondering if that could be a benefit and then just how much further can Walgreen's go optimizing inventory terms? Thanks.

Yeah Mark, it’s Greg. We are seeing -- you probably asked mix between what we're seeing from CCR and what we're seeing from supply chain initiatives and I'm really enthuse with frankly what we're seeing more on the supply chain I think the CCR reductions we kind of expect it, but I think we're making real progress on supply chain with Randy, who is working with our vendors. And we're also really making progress on the pharmacy side as well and that's more from really fine tune in safety stock and the actual quality that we need to have on hand, So, I think there is still upside for us, I think we've got a lot of potential to improve our supply chain.

And it took for us as we do believe there is opportunity, but we're going to make sure we keep taking out inventory while we improve our service level at the same time and when we able to do those two things in constant by changing how we think about it and how we work and how our processes work.

We're working with vendors on a much greater way than we have in past and there is, of certain past Randy now has inventory from there at least a vendor to the consumer hands. Lot of opportunity there. Mark Miller - William Blair: Thanks. Just finally looking for the flaw in these results not obvious but only comment would be nice if you had brought back stock sooner and hopefully that will come. Thanks.

Thanks, Mark.

Thanks, Mark.

And our next question will come from Ed Kelly with Credit Suisse. Edward Kelly - Credit Suisse: Hi good morning guys, nice results. Where your DNA was up only about 1% this quarter, I mean it's been up a lot more than that historically. Is there something that we should reason to that is, reason that it was up so much and how should we look at that going forward? Is this going to be a more normalized growth rate now that your CapEx been is coming down?

I think that's right. I think it's more normalized now what you're seeing. Slowing start grow, starting to impact a little bit and then the mix in terms of obviously where we've been spending I think the rates we're seeing I think it will be normalized now. So as best, we should be thinking about sort of low single digit type DNA growth going forward.

May be single to mid; hopefully December to finding on that Edward Kelly - Credit Suisse: Okay. And then, if you could just go through the billion dollars in cost saves when you initially laid that out you had a few bucket there. Could you talk about where you're into those buckets in terms of relative to your initial plan?

Okay. Well you know there is three core big buckets. The first one was basically indirect spent that's 215 million all that things we've buy that we don't sale the people. And then there is $500 million which was corporate labors, field's labor, store labor, etcetera payroll affectively. And then another $250 million it benefits associated with really transforming community pharmacy. I would say that and all three of this we are on plan with what we predicted. In fact the net benefit what we'd originally said would be zero this year and we basically did end up with zero, but we had a lot more cost this year and lot more benefit than originally thought and that's because we pull forward many of these initiatives, so we pull forward the one-time, but in some cases also pull forward the benefits. So, again that given specific year-by-year of the buckets and all three we believe we're on-track, we're on track for 500 million next year, we believe we want to achieve for the billion in 2011. Edward Kelly - Credit Suisse: Okay, great. And then Greg just last question for you, you mentioned acquisitions as supplementing the core strategy, could you may be just talk little bit about what you sort of have in mind there are we talking healthcare, retail opportunity this is sort of smaller both on the which consider something larger, nay help there would be great?

Well, I think as I said we want to stay flexible to look at whatever opportunities come our way, we think we've built some pre-sophisticated platforms on healthcare side, we've got the leading infusion platform now and we're combining those because we think there is true differentiation to take as specialty slice infusion platform to the payer. So we feel good there. I think the take care clinic platform gives us the ability to really launch more and more health environment services as we do focus more on prevention of chronic disease, going forward. I feel good there, our employer health sites as well we got a good platform. So I think there is some gap fillers maybe on the healthcare side maybe we maybe need to look at but I think just we want to just stay flexible and look at whatever may come to us. There is definitely some consolidation on the retail side of business but we filter and make sure make good decisions. Edward Kelly - Credit Suisse: Great. Thank you.

And our next question will come from Steve Halper with Thomas Weisel Partners. Steve Halper - Thomas Weisel Partners: Yeah, hi good morning. Just to clarify so the AWP hit based on the settlement that was amounts couple of days ago that's a done deal that's what you think the cost is going to be in 2010?

I wouldn't say it's a done deal I think the range we feel very confident with I think there's a lot of work to be done. Steve we're going to do everything we knew to even improve upon that. As I said, the commercial side, we feel good about, we've got some work to do, but they pretty much realizing the need they want to make us whole and on the state side, it would be state by state and I think states (ph) so they've been little slower to come along, but as we've done with each stage in the past or hand each one uniquely and continue to try to work with them and help them find other ways. Steve Halper - Thomas Weisel Partners: So, would you characterized the 80 to 90 as your worse case?

I think that's safe to say. Steve Halper - Thomas Weisel Partners: Okay, great. Thanks.

And next we'll hear from John Ransom with Raymond James. John Ransom - Raymond James: Hey, just following up on the AWP question, I think when we're out there in August, you had that number about a 150 million. Have you just refined your estimates or have you had any statements to bring that number down?

Well now there's been a lot work done John in the last several months. Certainly all of this in this industry have, had this is one of our top priority. So we've had our folks working the commercial side aggressively and it really means the good progress there. And again states been all slower but we're going to continue to work with each state to try to help them find other ways of reduce costs. And we worked with State of Washington, State of Delaware and ended up with good results in both those states and we expect to do the same. John Ransom - Raymond James: Great, second question your script trends per store are up quite a bit year-over-year. How much of that is market growth and how much of that is market share what do you think.

We're exceeding the market share the IMS numbers without WAG pretty significantly. So we feel good there. Obviously we're rounded some but I think we're also seeing some positive numbers from the file buys that we've made over the recent 12 months. I think we're also seeing people begin to stay more complaint on their drugs. I think the either the economic downturn I think we saw people (ph) and skipping doses I think we'll begin to see that's soften in a little. John Ransom - Raymond James: Okay. And then lastly, talking about your 90 day at retail you're still on about 5% I think of up quite a bit, just looking at the structures of your commercial plans and the ones that would only be 90 days on their own retail mail platform, what's the upper limit of what's you could do 90 day at retail do you think and how much should we expect those script that penetration to grow and what kind of effect you think it has on your P&L. Thanks.

Do you know on an adjusted number when I look at what's going on with Part D in the marketplace and even our Prescription Saving Club Care. Part D in marketplace were about 24% as I said on adjusted basis. Prescription Savings Club Card, we're looking at nearly 40%. I think there was a big upside as the payers begin to see more value as well as patients, the good thing about this is when a payer add a 90 day retail benefit to an existing 90 day mail benefit, 90 utilization increases and hence approved patients and payers both side. So, I think there is a huge market out there. John Ransom - Raymond James: Is there a structural, at least in the short-term a structural resistance from the Medco's and Express Scripts of the world that don't want to loose that 90 day mail?

There has been some natural resistant certainly. But again, I always go to the marketplace and as patients begin to want it and demand it and that is the payers that are offering it begin to see value, marketplace begins to dictate it. John Ransom - Raymond James: Right. And you guys get to your Board process for allocation of future free cash flow which is -- you're now on net debt, your cash exceed your debt, you obviously going to generate a lot of cash flow. How do you plan to communicate that for the marketplace, you're going to have some kind of press release following your Board or you're just going to talk about on your next conference call. How do you plan to get that message to the marketplace?

We definitely once we've finalized an approval we definitely we'll communicate. I don't know exactly how we will, but we'll make sure that we do. And we do it broadly and we're very clear about it. John Ransom - Raymond James: Okay. All right, thank you very much.

Thank you.

And our next question will come from Deborah Weinswig with Citi.

Good morning. This is actually Nathan (ph) filling in for Deb. First question I wanted to touch on is on your rewind for growth initiative, it seems like it's been pretty strong performance in both payroll. I was just wondering if you can share some more details on the work that you've done there and what changes we can expect going forward?

Yeah, I think on store payrolls as far as lot of it is the work that we are removing from stores chain wise is some of that is coming from CCR others is just as look we're looking at of processes. I think some of it has been looking at hours of operations to make sure we're right for the marketplace, but really just a real good effort in improving the efficiencies. We're looking at some of the processes and the work we've been asking our stores to do and other things are most encouraged with CCR and nearly responses we're getting from store managers is the fact that they say it's getting easier to run a drug store and I think that in itself could be one of the biggest benefits we realized.

Great, thanks. And then just one follow-up. In terms of your prescription savings about the things like the customer response has been pretty encouraging, I was just wondering if you see any opportunity to expand your early program?

Well, I think I agree with you on your Prescription Savings Club Card, we're really encouraged with it and I think we can continue to grow it and we are looking at the loyal initiative and beginning the early that work on we're probably going to pursue a CCR type journey that will build the foundation and begin to look at the pilot and go from there.

Great. Thanks a lot.

Next we'll take a question from Meredith Adler. Meredith Adler - Barclays Capital: Thanks and congratulations on the quarter.

Thanks Meredith. Meredith Adler - Barclays Capital: You were talking about the three buckets from growth and I was wondering if the last piece was about community pharmacy and making some changes there. And are you still focused on central sale, I heard you also talked about central phone calls can you talk about kind of where that stands and how that's going?

Yeah, I mean obviously there is different components to the whole transformation pharmacy that's what we called dynamic workflow balancing, which is pushing paper work across pharmacies. There is the front-end processing, which is streamlining and taking our call center work, paper work et cetera and their central fill. I think what we're finding is -- remember the end what this is really about as being able to free at pharmacist time and to do more services to the more cancer patients, provide a better experience it's about also being able to get scaled, so we can do some of the work more efficiently on the cost side, but we are finding in different places. There is different permutation that makes more sense in others, so sometimes makes sense sometimes it might not other times the central could be a great thing to link it to specialty to provide that kind of option in retail. So, it's really it plays the key role but, it depends on where we are geographically as to what makes the most sense.

Meredith it's not like that add to that in sort of there has been nationwide but when we talk about transforming community firm is the in addition what we extend we really look take cost at what we do but in so improve the out view performance is really way more agree to load and out care. This Blue-Shot program that we launched, it really helped provide a solution, great illustration of what pharmacist on the frontline health care can do, in addition what they done in the past. So we're really pleased with this as an example what we can do going forward. Meredith Adler - Barclays Capital: Great. Wonderful. And then I have another question maybe to talk a little bit more about how you will leverage the take care centers on side clinic to do even more in terms of managing chronic health conditions and are you putting a focus for the take care centers on getting managed care to pay for that.

Yeah Meredith. Both good questions. I look at our take care clinics as the platform that we have to now launch more and more health and wellness services. And as we move more toward a need for more prevention and management chronic disease health and wellness services, we're positioned well to offer more health's scrimmage point of care diagnostics as we go forward. Second question was... Meredith Adler - Barclays Capital: The second -- I'm actually not quite sure. I would think I wanted this know whether managed care was paying for the take your clinics?

Yeah managed care is we're most nearly 70, 75% contracted and it depends on market. But most managed care is definitely contract and I think we're the key things in the real opportunity yet with this business is it's been kind of a consumer pull model in the past where we've marketed consumers are coming in and using them on their own satisfactions of the charts. And there's managed care now begins to see more value and understand how I can help them offer affordable trust for healthcare I think you began to see folks encourage the use of them. Meredith Adler - Barclays Capital: Okay. This might maybe my final question would be about paying for some of these services I mean that's always been perhaps the hardest thing in healthcare is to demonstrate real value from counseling and then to get paid for it. Can you talk about maybe how those conversations are developing with managed care organizations?

Yeah, obviously it all that ends comes and obviously we need the analysts to begin to be able to show what we are able to do. Managed care is extremely interested in paying for these services more so they have probably seen in the last year, two years. And I think as long as we are able to show them the results and the outcomes there's we can monetize that. Meredith Adler - Barclays Capital: And you have the analytics build?

We need a little more sophistication there. But we've got some pretty good clinical folks, pretty good clinical teams that are helping us there. And I want to begin to feel little more sophistication but we're ahead where we need to be.

I think the work side group that we have to take care have a big headstart here because we have enabled been work with a lot of employers directly with their data on site to help manage outcomes at the really point of work and point of care and I think that's probably here a big advantage that we have. Meredith Adler - Barclays Capital: Great. Thank you very much.

Folks, this is Rick. That was our final question. Thank you for joining us today. We'll announce our September sales on October 2nd. Please keep in mind that we include Blue-Shots in our script totals rather than as front-end sales. Our next quarterly financial announcement will be on Monday, December, 21st. That's when we will announce fiscal 2010 first quarter results. And till then thank you for listening.

Thank you, everyone.

And that does conclude our conference. Thank you for your participation.