Rick Hans - DVP, IR, Finance Greg Wasson - President, CEO Tim McLevish - CFO, EVP Alex Gourlay - President, Customer Experience & Daily Living Jeff Berkowitz - Co-President, Walgreens Boots Alliance Development GmbH

Robert Jones - Goldman Sachs Mark Miller - William Blair Ricky Goldwasser - Morgan Stanley Eric Percher - Barclays Capital George Hill - Deutsche Bank Scott Mushkin - Wolfe Research Lisa Gill - JPMorgan

Good day, ladies and gentlemen and welcome to the Walgreen Co., Fourth Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded. I'd now like to introduce your host for today's conference Mr. Rick Hans. Sir, you may begin.

Thank you, Amanda, and good morning, everyone. Welcome to our fourth quarter conference call. Today, Greg Wasson, our President and CEO; and Tim McLevish, Executive Vice President and Chief Financial Officer will discuss the quarter and the fiscal year. Also joining us on the call, and available for questions are Alec Gourlay, President of Customer Experience and Daily Living; and Jeff Berkowitz, Co-President of Walgreen Boots Alliance Development. As a reminder, today's presentation includes certain non-GAAP financial measures, and I would direct you to our Web site at investor.walgreens.com for reconciliations to the most directly comparable GAAP measures and related information. You find a link to our webcast on our Investor Relations Web site. After the call, this presentation will be archived on our Web site for 12 months. 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 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 filing and subsequent Exchange Act filings for a discussion of risk factors as they relate to forward-looking statements. Now, I'll turn the call over to Greg.

Thank you, Rick. Good morning everyone and thank you for joining us on our call. Today I will begin with a review of the highlights of the quarter and the fiscal year. Next, I will provide an update on our progress toward the launch of Walgreens Boost Alliance Inc. And finally, I will look ahead to fiscal 2015. And then I will turn the call over to Tim McLevish for a more detailed financial review. In the quarter, we continue to see improvements in our top line with growth in our Daily Living business and prescription volume that resulted in our largest quarterly and fiscal year sales increases in three years. In addition, we continued to see margin improvement across the front end of our business. As we move into fiscal 2015, we are very focused on our performance. We put into place a strong blended management team for the future of Walgreen Boots Alliance organization, which is bringing greater focus and clarity to the critical work at hand. For the quarter, net sales were $19.1 billion up 6.2% from $17.9 billion in the fourth quarter last year. GAAP operating income for the quarter was $969 million down 5.8% from $1 billion last year. Adjusted operating income for the quarter was $1.14 billion up 3.5% from $1.1 billion in the fourth quarter 2013. The GAAP loss per share in the fourth quarter equaled $0.25 compared to earnings per share of $0.69 last year. Fourth quarter adjusted earnings per diluted share were $0.74 up 1.4% from $0.73 in the same quarter last year. This quarter's GAAP results were negatively impacted by $866 million or $0.90 per diluted share non-cash loss related to the amendment and exercise during the quarter of the company's Alliance Boots call option. I will turn into our fiscal year performance, sales were $76.4 billion compared to $72.2 billion last year up 5.8%. GAAP operating income was $4.2 billion up 6.4% from $3.9 billion in fiscal 2013. Adjusted operating income for the year was $4.9 billion compared to $4.7 billion in 2013 up 4.6%. Our full year GAAP earnings per diluted share were $2 down 21.9% from $2.56 last year and on an adjusted basis, earnings per diluted share were $3.28 up 5.1% compared to $3.12 last year. We closed fiscal 2014 entering the next important phase in our strategic partnership with Alliance Boots amending an exercise and the option to complete the second step. Through the transaction, the new Walgreens Boots Alliance will have unmatched global reach strength and leadership and a broad mix of retail health, well-being and beauty businesses and an international pharmacy wholesale network all dedicated to ensuring people across the world lead healthier and happier lives. This fiscal year, we also completed the transition of our drug distribution into AmerisourceBergen. Their company now supplies virtually all of our brand and generic medications; the strategic relationship together with Alliance Boots is establishing the leading global pharmaceutical wholesale and distribution network. Importantly, we achieved $491 million in synergies through our WBAD joint venture. Our retail pharmacy market share grew 30 basis points to 19% in fiscal 2014 and we filled a record 856 million prescriptions. In our Daily Living business, it was a big year for beauty. We launched boots number 7 products in our Phoenix and New York markets and our flagship locations to a very positive customer reaction and improved performance. And finally, we increased our dividend for the 39th consecutive year. Turning to trends in gross profit dollars and SG&A dollars, in the fourth quarter on a GAAP basis, our gross profit dollars increased 2.6% or $136 million from a year ago SG&A dollars increased 4.8% or $207 million compared to the same time last year. Adjusted gross profit dollars increased 2.6% or $133 million compared to the same quarter last year. Gross profit dollars grew primarily as a result of the improvements in script comps and front-end comp sales. Gross profit dollar growth also benefited from brand to generic conversions year-over-year, but were negatively impacted by lower third party reimbursement and generic drug price inflation. Our adjusted SG&A dollars increased 2.1% or $86 million compared to the same quarter last year. These results reflect the impact of savings from enterprise optimization, our efforts underway to improve efficiency across the organization. Looking ahead, we will continue our strong focus on cost reduction driving to achieve our $1 billion target over three years, which we announced in August. We have put headquarters and non-labor spending reductions into immediate effect and are continuing to work toward greater efficiencies in our processes through Walgreens lien Six Sigma. Now, turning to our key performance drivers. In pharmacy, health and wellness, our script comp was up 3.9% in the quarter. We filled 211 million prescriptions in the quarter up 4.2% from the same period last year. To drive that performance, we continued our focus on winning with high value seniors through preferred relationships with Medicare Part D plans. Since 2013, our prescription share with Med Part D seniors has grown more than twice as fast as the overall retail prescription share. On average Med D seniors fill 3x as many prescriptions as our non-Part D – non-Med D customers. We also are capturing share in the fast growing specialty market by improving and integrating care for patients with complex chronic disease states across our enterprise. By the end of the fiscal year, we now have access to more than 100 limited distribution drugs by manufacturers reflecting their growing desire to work with our unique specialty network of health system pharmacies, complex therapy pharmacies and fusion pharmacies and our specialty at retail offering. In the fourth quarter, we continued to face headwinds to our pharmacy margin from ongoing pressure from reimbursement and generic drug inflation. To address the pressure on our pharmacy margin, we are focused on our contracting strategy to a lot of our payer contracts to the realities of an inflationary versus a deflationary market. We are also aggressively working to reduce total pharmacy costs by increasing efficiencies and providing high quality and cost effective pharmacy services. Finally, Tim will discuss in greater detail the factors affecting generic inflation. We believe through our WBAD joint venture, we are well positioned to leverage our unique global retail wholesale relationships to create a long-term competitive advantage in the marketplace. Turning to our front-end comp sales, which increased 1.3% in the fourth quarter, average basket size grew 3.5%, while traffic was down 2.2% as we cycled a more aggressive promotional environment from a year ago. Key categories such as cough, cold and allergies drove comp sales and as I mentioned earlier, our front-end margin continued to improve in the fourth quarter compared to the same quarter last year with solid performance in health and beauty. At the end of August, we had 82 million active balance rewards members giving us valuable insights that allow us to target our promotional investments even more efficiently. We are also offering store wide events designed to further build loyalty. In the quarter, we converted or opened 88 well-experienced format stores giving us a total of 750 with plans for an additional 1000 in the coming year. These formats offer more integrated health and wellness products and solutions provide a private consultation room to receive health services and speak to your trusted pharmacists. And offer personal care and everyday items our customers' value. We are integrating these new store designs with digital and mobile technology to offer our customers ultimate convenience. And finally, with our newest flagship store in Wrigley building here in Chicago, we now have 14 flagships in 9 major markets. These flagships along with our well-experienced stores bring a real vibrancy to our markets and build awareness of our brand. Our strategic partnership with Alliance Boots contributed $0.06 of adjusted EPS accretion in the fourth quarter, combined synergies reached $124 million in the quarter and $491 million for the fiscal year. For fiscal 2015, we are introducing a full year combined synergy target of approximately $650 million. In addition, we are making good progress on the integration of our two companies. We recently held our first meeting in Bern, Switzerland with the future Walgreens Boots Alliance leadership team to ensure we are on track to close in the first quarter of calendar 2015. Meeting was extremely productive as we prepared to launch our new company and hit the ground running on day one. As you know, we also filed our preliminary proxy on September 16th and are now working toward obtaining all regulatory approvals and the vote of our shareholders. Finally, let me be clear. While the work underway to integrate our two organizations is an important strategic priority, the overwhelming majority of our team remained focused on serving our customers, improving our top line, expanding margins and bringing our costs down. Now, looking ahead to 2015, we are well-positioned to capitalize on the industry tailwinds and aging population growth in chronic conditions, consumerization of healthcare, increase new generics and growing demand for a personalized experience. With a suite of healthcare services and team of professional in our communities, with our approach to omni-channel access and the strength of our loyalty program and most important, the potential of our strategic partnership with Alliance Boots, we're positioned well to serve the needs of a changing customer and industry. We expect to continue to drive sales and margin growth in the front-end, offering ultimate convenience, the best in customer loyalty and extraordinary customer care with a focus on integrating health, beauty and convenience. We also expect to continue to increase pharmacy volume and share with high-value customers through growth in Med D, enterprise specialty and immunizations. Building on our efforts to optimize our enterprise and control SG&A, our three-year cost reduction plan is already underway. Looking at savings at the corporate field and store levels, we expect to begin to realize incremental benefits in fiscal 2015 and we will expand on these efforts leveraging the expertise of both Walgreens and Alliance Boots moving forward. We are realistic about the headwinds we face for the year, a cautious consumer, ongoing reimbursement pressure, generic drug inflation and significant step-downs from Med D reimbursement rates. The market reality certainly created challenge for us in fiscal 2015, but one that we understand except and are driven to meet. With that, I'll now turn the call over to Tim.

Thank you, Greg. Good morning, everyone, and thank you for joining us on the call. I will begin with the details regarding our fourth quarter performance then provide a few thoughts on capital structure, expectations for fiscal year 2015 and finish with some comments on our long-term goals. As Greg noted earlier, for the quarter, we reported a GAAP loss of $0.25 per share, but this doesn't tell the whole story. The GAAP loss of $0.25 per share walks to an adjusted earnings of positive $0.74 per share for the quarter and is illustrated by this chart. The GAAP number is first adjusted by $0.90 to reverse the accounting treatment of the call option to purchase the remaining 55% ownership interest in Alliance Boots. Let me elaborate on this. GAAP accounting requires that upon amendment and exercise of the call option, the company needed to compare the fair value of the amended option with the book value of the original option and record a gain or loss to recognize the difference. Applying the standard, we determined that the fair value of the amended option once exercised was estimated to be zero. This valuation is as a financial instrument without regard to its strategic value. This reduction in value was primarily due to the shorter duration of the amended option and the appreciation since the original valuation in the price of Walgreen stock. The resultant effect required us to record a non-cash loss on the exercise of the call of $866 million with no tax benefit – with no immediate tax benefit. I will also point out that for GAAP EPS purposes and due to the loss any outstanding stock options would be anti-dilutive and they are not included in the share count. As a result, 956 million basic shares was used in the calculation for GAAP EPS. But since the adjusted EPS is positive, the effect of the diluted shares has been reflected. The remaining adjustments should be more familiar to you. A LIFO provision of a negative $0.01 per share, acquisition related items were $0.11 per share, consisting of $0.06 of acquisition-related amortization, $0.01 of acquisition-related costs and $0.04 from Alliance Boots related tax. And finally, the special items had a negative impact of $0.01 per share. This was comprised of a negative $0.10 impact of the warrants issued by AmerisourceBergen to Walgreens and Alliance Boots, Alliance Boots impact was reported on a three-month lag basis. Also, a gain on the sale of a business of $0.01 was partially offset by the positive $0.10 impact of store closures and other assets optimization cost. Turning now to comparable store script numbers, on a one-year and two-year stack basis, in the quarter, comp scripts increased 3.9% on top of 7.1% in the prior year. The three year stack, therefore, on script comps has improved dramatically at or over 11% for both of the last two quarters. This performance reflects growth of our underlying business, the ongoing progress in winning new Medicare Part D customers, an increase of 90-day at retail scripts and the return of the Express Scripts patients. According to IMS, we grew script 60 basis points faster than the retail industry in the quarter. Likewise, we look at front end comparable store sales fronts on both the one year and two year stack basis. In the quarter, we reported 1.3% front-end comp with the individual components of this being basket size, which increased by 3.5% and traffic which decreased by 2.2%. You can see that comps have been positive for the last six quarters and the two year stack comp trends have improved about 400 basis points since the second quarter of 2013. Now on to margins, adjusted gross margin was 27.9% in the current quarter compared to 28.9% last year, 100 basis point decline. Margins were solid on the front end, but were weak in the pharmacy. Front-end margin benefited from our purchasing synergies and our strategy of winning in the most important categories particularly in health and wellness and beauty, which is also driving market share growth. The primary drivers for the pharmacy margin decrease were increased third party reimbursement pressure partly due to contract step downs increased Medicare Part D business mix including our strategy to continue driving 90-day prescriptions at retail, pronounced generic drug inflation on a subset of generic drugs and the mix of specialty drugs partially offsetting these pharmacy margin decreases were the positive effect of the increased rate of introductions of new generic this quarter versus the year ago quarter and purchasing synergies in the pharmacy. As we look into the future, for the next quarter we expect the negative factors impacting pharmacy margin to outweigh the expected benefit from new generic introductions and front-end margin improvement. Let me say a few additional words about generic drug inflation. The dynamics under which generic drug and manufacturers can avail themselves of pricing actions has not changed. They are able to raise prices when demand outpaces supply. These drug supplies can be impacted by a number of mechanisms including regulatory actions by the FDA resulting the shutdowns of both API and finished dosage for manufacturing plants, generic drug manufacturer consolidation and portfolio harmonization, API manufacturer consolidation and FDA backlog on approvals as well as a shrinking pipeline of first to market generic blockbuster launches. Our current environment is experiencing all of these mechanisms and as a result, the average inflation in our basket of generic drugs is mid-single digit as measured on a comparable drug priced basis. This change is caused by very large price increases and a small percent of molecules because these supply constraints and other factors are continuing, we expect a generic drug inflation will be with us for a while. In the meantime, we are working diligently to minimize the impact of this inflation by tracking the movement of AWP. And working with market participants to help them understand the importance of appropriate AWP adjustments to represent changes in actual drug costs, evolving our payer contracts to reflect the realities of an inflationary versus a deflationary market and working through our joint venture to secure better costs by leveraging our unique global retail and wholesale value proposition to create a long-term competitive advantage in the marketplace. Jeff Berkowitz is here with us today and available to answer any further questions about this subject. As you know, the mix of generic and specialty drugs can have a significant impact on gross profit margins, so we also focus on gross profit dollar growth in our business. This next chart illustrates our one and two-year stack gross profit dollar growth trends on a GAAP basis for the last 16 quarters. The primary difference between GAAP and adjusted gross profit is LIFO provision. So let's review the one and two-year stack trends on an adjusted basis. Adjusted gross profit dollar growth increased 2.6% compared to a strong 4.3% growth in the year ago period. This growth was positively impacted by the comparable store script and sales trends in both the pharmacy and front-end respectively. It was negatively impacted by the same factors that impacted pharmacy margin that I described earlier. Despite this impact two-year stack in adjusted gross profit dollar growth trended up for the fiscal year. This chart illustrates our one and two-year stack SG&A dollar change trends on a GAAP basis for the last 16 quarters. Let me walk you through the adjustments to SG&A. For the quarter, GAAP SG&A dollar change was 4.8%, our adjustments included 3.2% for store closures and other optimization costs, 20 basis points for acquisition related costs and as shown our adjustment also included 20 basis points for a decrease in amortization costs, 30 basis points for distributor transition costs, and 20 basis points for other small items in the quarter. The walk yields and adjusted SG&A dollar change of 2.1% for the quarter. Two-year stack adjusted SG&A dollar trends increased versus a year ago by 310 basis points with a two-year stack of 3.6% up from 50 basis points last year. The two year stack from the year ago included a period when we were out of the Express Scripts network in the fourth quarter of fiscal year 2012. In general, two-year stack SG&A dollar change has trended down over the last 16 quarters. Our operating model required widening the gap between gross profit dollar growth and the SG&A dollar change. Now, I would like to take – to provide a little bit more detail on a few components of the income statement. This quarter included a LIFO benefit of $18 million versus a benefit of $8 million a year ago. Net interest expense for the quarter was $43 million versus $55 million last year. Our GAAP effective tax rate for the quarter was 231.9% versus 35.4% last year. The loss on the Alliance Boots call option was non-deductible for tax purposes resulting in this dramatic increase in the effective tax rate. This loss however, is available to be carried forward and offset against future capital gains through fiscal 2020. But, under GAAP rules, we are not able to reflect the benefit until we have identified specific gains against which we can offset the loss. Average diluted shares outstanding were 968 million versus 957 million last year. The change is primarily due to options exercised and the impact of higher stock price in the money options. And now, a few words on our AB partnership. The combined net synergies for the quarter totaled $124 million and for the fiscal year $491 million. Adjusted EPS accretion totaled $0.06 for the quarter and $0.43 for the fiscal year. For the first quarter of 2015, we expect accretion from Alliance Boots to total $0.10 to $0.11 versus $0.14 in the quarter and the first quarter of 2014. Note the last year's accretion received a $0.07 tax benefit from the U.K. tax law change and this year a $0.02 benefit from AB's acquisition of its partner's interest in the joint venture. For fiscal 2015, we expect the combined synergies to be approximately $650 million. We are very pleased with both the progress and the benefits we are receiving from this partnership. Now, couple of words on working capital. Accounts receivable increased 22.3%, let me explain the increase in accounts receivable is primarily due to higher vendor funding receivables to the joint venture AmerisourceBergen for rebates. This increase was partially offset by better third party receivables. LIFO inventories decreased 11.3% and accounts payables decreased 6.9%, both in conjunction with the terms of our new agreement with AmerisourceBergen as the remaining generic pharmacy distribution transitioned to them. Under the terms of the agreement, we expect both the inventories – we expected both the inventories and account payables to decline. Overall, net working capital increased by 2.7% versus a year ago an opportunity as we increase our focus on cash flow. Speaking of which let's look at how we did. For the year, we generated approximately $3.9 billion in cash from operations versus $4.3 billion in the year ago period. Free cash flow in the fiscal year was $2.8 billion versus $3.1 billion in the prior year. The lower cash flows in the year were primarily due to changes in working capital I just mentioned. Our capital allocation policy is structured to ensure a balanced and disciplined approach to capital and includes investing across core businesses at suitable returns to drive organic growth, pursuing strategic opportunities, including M&A that meet our return requirements and drive long-term growth, maintaining a strong balance sheet and financial flexibility with a commitment to solid investment grade credit ratings and returning cash to shareholders by committing to 30% to 35% dividend payout target over the long-term and finally returning cash to shareholders in the form of share repurchases. As you know, we're currently executing against our $3 billion share repurchase authorization. Many investors have recently asked us about the potential for incremental share buybacks beyond that $3 billion. As you know, the level of share repurchases are function of many considerations, including the impact on the cost of debt, leveraged ratios, credit ratings, the relative return on the investment and alternative uses of free cash. We will continue to discuss our capital allocation policies with our Board and will make any future changes when appropriate to maximize shareholder value. Now, let me comment about fiscal year 2015. While we have set a new goal for fiscal 2016, the trajectory to get there is not linear. The tailwinds we expect through fiscal 2016 will be largely offset in the short-term. Of note, our reimbursement rate pressure, including specifically lower Medicare Part B reimbursements coming in January of 2015 and the continued impact of generic drug inflation. Also affecting the EPS growth rate in 2015 is the timing of the close of step two with Alliance Boots. Our adjusted tax rate is expected to be between 29% and 30%. Our share count at fiscal 2015 year-end is expected to be approximately 1.1 billion shares, the average shares outstanding for the year will be subject to the timing of the close and the pace of our share repurchase. We will continue to focus on utilizing available cash to offset dilution; that is, the impact of dilution due to option exercised and the dilutive impact of in the money on exercised options. In fiscal 2014, CapEx was $1.1 billion. This was below our original plan of 1.4 billion as we slowed some investing in well experienced stores until we further optimized the investments and rollout plan. In fiscal 2015, we now plan to convert or open an additional 1000 stores to the well experienced format. The step up and expected CapEx to $1.7 billion reflects this new expansion plan. We also like to provide some further clarification on interest expense for 2015. Due to market sensitivity around our financing plans, we cannot provide any specific estimates at this time. We will be in a better position to provide this on our next earnings call. But to give you some perspective, I would offer the following. We have an obligation to deliver $3.1 billion in Sterling at close that equates to approximately $5 billion at today's exchange rates. We're factoring that obviously into our financing plans. We also intend to refinance substantially all of the Alliance Boots debt at closing to optimize our capital structure and take advantage of lower rates afforded by our combined credit profile. You can look to AB's last reported gross debt balance for reference a point, but please understand that this does not reflect the debt issued and assumed with the recent acquisition of FASA. Finally, you can assume our current reported interest expense is a reasonable run rate for 2015 for Legacy Walgreens interest expense. In order to accomplish our step two objectives, we would look to secure the necessary capital in advance of our expected closing, which we are targeting for the first quarter of calendar 2015. In our first quarter of fiscal 2015, we expect our interest expense to be comparable to the fourth quarter at $43 million the tax rate to be approximately 30% and the average share count to be about 957 million shares. Before closing, I want to take the opportunity to make sure that everyone understands the major elements and the reconciliation of the original fiscal year 2016 adjusted EBIT goal that the company first presented in the summer of 2012 to the new adjusted EPS goal announced this past August. This slide identifies the relative sizes of the four major elements involved in the walk from the old goal to the new goal namely Walgreens front-end, Alliance Boots, Walgreens Pharmacy and finally the Walgreens incremental cost savings. Even though we're not quantifying the side of each element in this reconciliation, we wanted to give you a sense of the relative magnitude as well as some of the individual factors for each element contributing to the shortfall. With that, I'll turn it back to Greg for a few final remarks.

Thanks Tim. Let me close by saying that overall the quarter met our expectations and closed on a challenging important and historic year for Walgreens. We recognize we have more to do and as fiscal 2015 is another milestone year for our company. We have two very important opportunities ahead of us. The first, drive performance and execution for Walgreen Co. and the second, established Walgreen Boots Alliance as the first global pharmacy led health and well-being company. A few weeks into fiscal 2015 I am confident in the combined leadership team we have put in place. We're already working well together to develop and implement plans to improve performance across the business. We have the discipline and focus we need to deliver the performance you expect. Finally, as we close the book on fiscal 2014, I want to thank our customers, the Walgreens and Alliance Boots teams and our shareholders for their commitment to our company and confidence in our future. We are equally committed to meeting your expectations as we bring two great companies together to create something even greater for all of us. Thank you and I will now turn the call back to Rick.

Thank you, Greg and Tim. That concludes our prepared remarks. We're now ready to take your questions. Please limit yourself to one question. Amanda?

Thank you. (Operator Instructions) Our first question comes from Robert Jones with Goldman Sachs. Your line is open. Robert Jones - Goldman Sachs: Great. Thanks for the questions and all the details this morning. Obviously, the big focus in the industry has been around pharmacy reimbursement. We heard one of your competitors a few weeks ago talk about increased pressure that they are now anticipating given some of the contract negotiations that they are in the midst of. And I know you guys called out Part D rates and ongoing general reimbursement pressure this morning, but I was hoping you guys could just delve into it a little bit deeper and maybe give us some order of magnitude of how you are thinking about the reimbursement rates as we get into the fiscal 2015? Maybe just even on a historical perspective, how are you anticipating this reimbursement pressure relative to what we've seen in previous years?

Yes. Bob thanks and I'll let Jeff weigh in here a little bit as well. I think as we – you laid them out quite well frankly, I think commercial reimbursement pressure, ongoing reimbursement pressure will be on the order of magnitude of what we've seen going forward. Part D, our one-year contracts as you know, certainly this past year that market became much more competitive with the preferred plans and other providers wanting to get into those plans primarily because of the share gains we're realizing. In 2016, we don't expect to see that significant of a step-down. We think there will continue to be pressures plans we're looking to control costs. And then certainly with generic inflation being a big driver of those contracts versus the deflation that we've seen over the past, we're going to have to really understand and understand where generic inflation is going. Jeff, I will let you weigh in a little bit.

I think, Greg, just on that point as the generic inflation dynamic has unfolded over the course of the past 12 months. We have been developing contracting strategies to adjust it more proactively. We started to incorporate protections into our agreements that adjusted inflation dynamics that we're seeing and we have actually successfully incorporated some protective language in one of our first major renewables moving forward. I think, with that as a baseline, we are beginning to [construct our payer] (ph) arrangements and the generic inflation impact really impacts a variety of stakeholders, not just retail pharmacies. So as our reimbursement agreements continue to cycle through, our own stakeholders are going to have to continue to adjust to their potential new reality of fewer new generics being launched and inflation on a small subset of mature generics, which may mean the payers will come to expect lesser discounts from pharmacies and clients and payers may get less discount guaranteed as contracts come around for renewal and we continue to see inflation. Robert Jones - Goldman Sachs: Jeff, I think that makes sense. I guess just one follow-up on that issue. I mean, it sounds like you guys have made some progress. But do you think that ultimately this issue around dealing with inflation is something you guys can actually mitigate through better contracting? Or do you think you need to see legislative action take place in order for this not to be kind of a structural issue for the industry going forward?

I would – Bob, I'll lead off and then let Jeff get to specifics. I think it will probably end paying both. I think certainly we do think that it's going to persist based on our intelligence and all the industry intelligence that we're seeing out there. It's hard to predict. I think Jeff and his team have really ramped up their predictive modeling so we can understand what may happen going forward. But, I think that we may indeed see the benchmark, the tables begin to reflect what's really going on with cost inflation, we'll begin to see some of that as we speak and then a lot of the different things that Jeff and team are doing with regard to putting inflation protection into contracts. So I think we will begin to be able to get after. Robert Jones - Goldman Sachs: All right. Great. Thanks for the questions.

Thanks Bob.

Our next question comes from Mark Miller with William Blair. Your line is open. Mark Miller - William Blair: Yes, hi, good morning. Question on cash flow. So came down in fiscal 2014, even as you trimmed your CapEx budget. I guess as we look ahead it was a step-up in CapEx and more of the well-experienced stores, can you give us a sense for how free cash flow, the organization may trend the other pieces being just a little further understanding of where working capital goes and also the relationship with AmerisourceBergen? Thanks.

I'll take that one, Mark. And obviously, we'll have some step-up in earnings. So that will be a positive component of that. I think the majority if not all of the step-up in inventories and I mean the step-up in accounts payable and receivables resulting from our arrangements will have already been reflected in 2014. So we shouldn't see an increase there. I think we need to continue to work at our working capital, so I would expect to be pushing that down rather than up. And obviously, we've identified that there will be a step-up in CapEx for the year. Mark Miller - William Blair: But just as a follow-up then netting that altogether, Tim, are we expecting an increase in free cash flow and there is any sense for magnitude? Thanks.

Yes, I mean, I would say, it's probably not materially different from what we saw in this year. I think that's clearly a focus area as we'll go forward to improve our cash flows, but immediately I don't anticipate that's going to be material change for 2015. Mark Miller - William Blair: Okay. Thanks.

Thanks Mark.

Our next question comes from Ricky Goldwasser with Morgan Stanley. Your line is open. Ricky Goldwasser - Morgan Stanley: Yes. Good morning and thank you for the color that you provided on the call. Just digging a little bit further, when we think about the headwinds that you expect in fiscal year 2015 and then the cost-cutting initiatives that you launched to offset, can you just help us understand the magnitude, the dollar magnitude of the headwinds? And we're not looking for line item by line item, but you gave us numbers through the end of fiscal year 2016 for both. If you can just clarify what percent of that is going to materialize over the next 12 months would be very helpful.

Well, Ricky, maybe I'll start, I'll let Tim weigh. And I think we did say without giving the actual numbers that certainly we wouldn't expect to see a linear progression from what you saw in 2014 through 2016. And I think that's the main thing. I think we do see significant headwinds yet in 2015. And as we said, we think that a lot of the tailwinds that we see will be outweighed by those headwinds with generic inflation persisting so forth. With that said, we do feel that we're taking concrete actions now that are giving us confidence that we certainly can hit and exceed the 2016 goals. But I guess without breaking it down bit by bit, certainly it will not be a linear progression from 2014 to 2016. Tim, any color?

Yes. I agree with that. I mean we talked about risk of repeating what you just said and what we said in the script, but we will experience these short-term headwinds before that will take a big chunk of the tailwinds that we have coming that will drive us to 2016. In the meantime, we're undertaking cost-cutting program, we're well into that. How much of it actually will materialize in this year particularly as we see the headwinds, we're stepping up a phase on that. So we will look at accelerating that to the degree we possibly can. We've already undertaken some hiring freezes and some other actions to reduce the cost for the year. Ricky Goldwasser - Morgan Stanley: So when we think about these cost cuts and it sounds like hiring freeze is probably going to cap growth of SG&A rather than take out SG&A, but I mean you talked a little bit about cost cuts coming from kind of like corporate level expenses. Have you been able to identify some significant cost savings opportunities at the store level as well? And again, should we think about it more as a kind of like a 2016 opportunity?

Yes, Ricky, maybe I'll start with the fact that with Tim coming on as CFO and certainly the Walgreens Boot Alliance Finance Director, Tim is going to be quarterback in cost across the group as well as making sure that we have the targets that we expect. And I think we need to get – Alec Gourlay certainly taken on the U.S. business as President-elect will own and be accountable for the WAG business with Mark Wagner who's coming out of the stores and one of our strong leaders as far as executing – will be leading that for Alec. I'll let Alec kind of give a little color on where he has identified the sources for Phase 1 and the second and third phases, how he is kind of looking at it. Alec?

Hi, Ricky. I think that we see some opportunity in the near-term to really stop spending. As you said, money which is not really having an impact to their own customers so the first phase will all be about protecting the customer end and working back the way. We're pretty confident that we see opportunity hanging in to 2015, but we have more work to do to first of all ensure we can and then confirm we can. But we feel pretty good about that. Then going forward, as you said, the majority of the structural change will happen towards 2016 as we think about how do we actually set the business up for the future. Ricky Goldwasser - Morgan Stanley: Thank you.

Thanks Ricky.

Thank you. Our next question comes from Meredith Adler with Eric Percher. Your line is open. Eric Percher - Barclays Capital: Thank you. It's Eric Percher and Meredith Adler from Barclays. The question for Tim and perhaps Jeff. When you entered the relationship with AmerisourceBergen, you believe generic pricing was deflationary in trajectory and now you see inflation and it sounds like it's here to stay. Does ABC have a – or Amerisource have a role to play in offsetting the negative inflationary impact or does that responsibility really lie with WBAD? And how has WBAD's game plan changed? You talked about the changes that Walgreens relative to contracting, how have you changed your manufacturing strategy for an inflationary environment?

Yes, Jeff – yes, Meredith, I guess I'll take the second one first because we've actually got quite a few things that we've been doing in the short-term that we can do in the longer term. I think we continue to believe that the coming together Walgreens and Alliance Boots as well as the strategic alliance with ABC is providing a long-term sustainable competitive advantage in the marketplace as Greg had mentioned. Even right now, despite this inflation on a very small subset of molecules and we have to keep in mind that the vast majority of molecules continue to experience deflation versus the small amount of hyperinflation on a very small amount of molecules. Just right now WBAD has been able to roll out a new and enhanced price protection policy with generic manufacturers that provides actually lengthier protection to Walgreen in an inflationary environment, providing more flexibility for us to develop alternatives and also more time to allow us dynamics to catch up. I think this dynamic over the past 12 months has also forced us to tighten the systems and processes and communication between the teams. So we've enhanced our analytics that now allow us to much more proactively forecast where we may see inflation, which is allowing us to take much more initiative and be pre-emptive rather than be active in the face of that inflation. In terms of ABC, certainly, when you think about the Walgreens Boots Alliance development organization WAG AB and ABC, we've really brought together four of the best in class generic procurement teams across four companies with an extremely large amount of volume, which is very important to the generic manufacturers. So the volume and the relationships that we have with ABC has really helped us continue to manage the dynamic moving forward. Eric Percher - Barclays Capital: And when you see price – when you say price protection is now being built in, can you expand on what that means and how that comes to play?

Well, I think maybe – Eric, go in for Jeff there, we don't want to go into that too much. Obviously, we want to make sure we maintain a competitive advantage. But I think what Jeff has done and team within the WBAD have worked with the manufacturers to get us additional protection as we go forward it gives us time to react. But I think I'd like to withhold any more information than that. Eric Percher – Barclays Capital: That's fair. And I guess the last question would be, do you feel like most of that pressure that's not structural or product mix is coming from a relatively limited number of manufacturers? And do you think the movement to outsourcing efforts helped create that push for more inflation?

Well, again, I think it's a host of things that have driven that inflation. Certainly, there is consolidation in the buying space with us and three or four other large buyers buying about 80% to 90% of the generics. But at the same dynamic, there is some consolidation in suppliers. But that said, I wouldn't say that all of it. There are a lot of other dynamics, I see Jeff want to weigh in here that are really at the group costs. Some of those will be a lot more – or longer – or more persistent than others. Jeff?

Yes, I would look at it as more a molecule-led than vendor-led. I mean, we continue to forge very deep relationships at the highest levels and on a global scale with the major generic manufacturers. But the inflation that we're seeing is really not associated with any one particular vendor. It's really based on the molecule opportunity where there is harmonization in the portfolios, or manufacturers have supply issues or pulling out of molecules where that price opportunity comes, somebody then takes an increase and the others feel some confidence to follow up, sometimes later than others. So I look at it as – from a molecule perspective and a supply perspective versus a vendor perspective where we have developed very deep relationships. Eric Percher - Barclays Capital: It's very helpful. I'll pass it on.

Thank you.

Thank you. Our next question comes from George Hill with Deutsche Bank. Your line is open. George Hill - Deutsche Bank: Yes, good morning. First of all, Tim, welcome aboard.

Thank you, George. George Hill - Deutsche Bank: Maybe I'll hop right into Jeff, can you quantify for us and I'm going to keep kind of coming back to slide 37 here in the present -- I'm sorry, 33 in the presentation. I guess, can you quantify how many of the payer contracts have been addressed or how much of the dollar value of the payer contracts has been addressed with respect to generic drug price inflation? The necessary reimbursement changes that need to be made part A. And then I guess part B to my question would be between Jeff and Tim, if I look at that Walgreens Pharmacy red box on slide 33, how much of that should I think of is at risk or flexible with respect to the company success in being able to renegotiate some of these payer contracts?

I'll let Jeff weigh in on the first and then Tim as far as the contracts.

Yes, I'd say our contracts span different contracting strategies depending on who we are working with and we sign multi-year agreements that come up over time. As a said earlier, we've already started incorporating that protection into our agreements, addressing the inflation dynamic and we already have a proved point that we successfully incorporated some protective language in one of our first major renewals since the dynamics taken place. So I think we will continue to work very closely with our managed care customers' over time to help them understand that dynamic and also help them understand the downstream impact to their own customer and client base as they need to work with them on the different financials that are taking place in the inflationary market.

I'll respond to the second part of your question, George. I mean, I think you are referring to the box called Walgreens Pharmacy and identify as the major component pieces being Medicare part D. I don't anticipate there is going to be material changes. I mean, we will continue to endeavor to mitigate any of these we possibly can, but I think the Medicare part D rates are going to continue to decline, I don't see a lot of hope out for that. We are seeing some of the volume recovery from the Express Scripts a couple of years ago but that's pretty much on pace with what we had anticipated when we put together this back in August. The generic inflation and we talked a lot about that you have this good a sense for that as we do based upon Jeff's comments. And again, the commercial reimbursement rate we continue to try to embed that in the contract, but it's unlikely that we are going to go back and get a step up for already inflation but we would hope that we would mitigate and minimize as any impact from future inflation. So I think this is a pretty realistic depiction of what we should anticipate in the going forward basis. It doesn't mean that we are – everyday out there trying to find ways to offset through any of these mechanisms. And obviously, as we talked about driving cost improvement is another major area that we will continue to work at. George Hill - Deutsche Bank: Okay. So it sounds like there is probably not a lot of upward relief but maybe we can mitigate the downward pressure. I guess then just a quick follow-up on that would be with respect to the synergy targets you guys have highlighted that it's going to be actually a pretty norm when you ramp, we think about 12, yet a big slip up in 2013, 2014 is a little – 2014 was a big step up, 2015 is a slighter, looks like 2016 is a big step up. Can you provide any of the color on any of the moving pieces, I guess aside from the close of a deal on what drives the synergy step up in fiscal 2016, and I will hop back in the queue with that.

Yes. George, may I will. Yes, I think certainly to start with the fact that, the good thing is first two years of the program we have exceeded those synergy targets. We still feel confident. We will exceed actually $1 billion in 2016. The leveling off so to speak from what we have seen in 2015 or the slight or lesser increase was plan. The first couple of years Jeff and team and John Donovan did a great job getting at the synergies from generic drug procurement that we talk about. That was the – I don't want to call that easy by any means throw something, certainly where we saw the earlier opportunities the first two years. The longer term synergy opportunities are – which are things like owned brand, expansion within the Walgreens front of store improvement across both Boots and Walgreens. We knew we are longer term. We knew they would come in 2015, 2016. Alec has done a terrific job in building confidence with pilots to help us understand how – to grow out some of those opportunities and when they will come. So it was planned, we have realized earlier synergy opportunities that's what we went after first and we feel confident the longer term synergies in 2016, maybe I will Alec give you some proof points as to why we do feel confident in that slope.

If I can Greg, I just…

Yes.

Because I observe that there is a flattening going in 2015 of that synergy level. We stand behind the ultimate objective. We think we are on track to get that as Greg pointed out. We did see a little flattening of the curve in 2015. The large piece of that is and not to diminish all the good work that's been done by Jeff and the WBAD team. But, the first step was drugs and there is a defined specs or there is a defined limited number of drugs and there is a defined number of manufacturers and suppliers with that. And so going off that was – what we will say -- I will say easy or low hanging fruit not even easy but low hanging fruit. As we get into the next step, we are expanding the number of items. We are expanding the manufacturers, now we don't have defined specs as we get into front of store and as we get into goods not for resale. It's – there is just more front end work before we are ready to approach the manufacturers and then there will be in all likelihoods some transitions from one brand to another or from one manufacturer to another. It just takes more time before we can get it. So you will see a little bit of flattening still moving forward, but the little bit less more flattening in 2015 and then we will realize the benefits whether that good work in 2016 and forward.

I think it is important enough topic, I think Alec if you can way as a proof points begins to happens so it will be helpful probably?

Yes, sure. I mean I think as I said already that front end margin expansion has been driven by deliberate strategy which is to really drive that health, beauty and wellness categories we were confident because we are trying to see some winning share in a market and secondly by working with Alliance Boots team to really build and drive (inaudible) particularly again in health, beauty and wellness. Both of these that would fill in -- there has been solid progress made in the market in front of customers. As you would see by both the market share performance and also by the margin expansion you see in Q3 and in Q4. So the signs there and as Greg said we also have a number of pilots running and partnership with the AB team that really ships there are really strong. And when we come together on stage II, I'm really confident it can -- team, we will run these global brands, will give us even more power to go to the front end. So it's a slower in terms of margin and it is more potentially (indiscernible) to make sure that we can actually change consumer behavior the point that Tim made that the signs are good and relationships are strong.

Thanks Alec. George Hill - Deutsche Bank: It is very helpful. Thank you.

We have time for two additional questions. Our next question comes from Scott Mushkin from Wolfe Research. Your line is open. Scott Mushkin - Wolfe Research: Thanks guys and thanks for fitting me in and really appreciate it. So just to clarify, we talked about not linear, I mean our expectations for EBIT in core Walgreen down next year?

Tim? No. They are not down. I mean, we aren't going to see the step up to the level that we have identified in 2016 relative to 2014. But, we aren't anticipating a decline.

We are not expecting an EBIT decline (inaudible)core Walgreen.

Correct. Scott Mushkin - Wolfe Research: Okay, great. And then, it seems like the synergies, we got 350 there, we got savings here of a $1 billion. The 425 to 460, it seems like we are favoring a low end given the challenges in the business or am I misreading that?

I really don't. I mean we have a range, we still have lots of moving parts narrowing that range is not something we are prepared to commit to at this point either on the downside nor the upside. I think it's a reasonable range, I think that we’ve reflected kind of a low end and a high end likelihood and I think at this point we wouldn't want to make any further comments on it. Scott Mushkin - Wolfe Research: Okay. Then Greg, could you talk a little bit about the culture, lot of changes at the company, lot of cost savings, we’ve heard some grumbling that the people are a little bit nervous. Could you maybe address the cultural issues?

Yes. Scott I think any big merger in combination to that kind of grants, there is going to be some degree of angst and that should be expected. I feel good about the culture and how it’s coming together. Since I actually put some comments in my script about the meeting we had couple of weeks ago in Bern with the new WAG – Walgreens Boots Alliance leadership team coming together. And that was a very, very energizing couple of days together in Bern. And I think Scott what probably is driving at is, one we – we have worked together for a good couple of years now. I think there has been a lot of cross [organizations] so to speak already happening. But, also think now that the Board has approved the options we have certainty now that we are going to bring this together, if indeed certainly our shareholders approve the additional shares and there is a time instead of years it's months. And I think that's always a good thing. So I think it started (inaudible), couldn't ask for a better partner (inaudible). And certainly the leadership team coming together like they are and we have seen in a last couple of weeks I think is very, very encouraging. Thanks Scott.

Thanks. Your next question comes from the Lisa Gill with JPMorgan. Your line is open. Lisa Gill - JPMorgan: Hi. Thanks very much. As I look at the tailwinds and headwinds, it seems they are very generic when you talk about aging population et cetera. Greg is there anything more specific that you think is going to drive Walgreens next year, for example, are you seeing any changes in commercial narrow networks where you could pick-up an increase in market share. I also noticed that even talk about the Affordable Care Act at all as being potential tailwind to the future, and I was just also curious as to what you saw in your fiscal 2014 for ACA?

Lisa I think that one of the things could become greater and greater tailwind and I think it is what Jeff is eluding to, our focus on building strategic relationships with more and more payers is gaining momentum. We for example we are working extremely well with express scripts and as you know we launched our Smart 90 program with them, while back. We are working together on some unique things. I think other payers held systems will begin and will gain transaction with some of the things we are doing with some of the large health systems around the country. As far as ACA, it's still early, I think we will probably see, I mean 20 to 30 bps in lift for the nearest we can tell as you know there is a lot of moving parts there lot of folks move from one plant to another. But, is best we can see, we are seeing a probably earlier on about 20 to 30 bp lift in script business we think that will improve as we go forward. But, I think it will really come down to what Jeff refers to as market access as we look at more and more access with pharma or specific products such as specialty limited distribution drugs and other things we are doing as well as the right access with the payer markets in the U.S. I think we will begin to build those relationships. Lisa Gill - JPMorgan: Okay. And then just secondly, Tim, we read the proxy statement you could back into a number and I think that you came back out with an 8-K saying that that number you could back into for 2015 really was assuming that AB was part of the company for the full year. But, if we were to back out AB for a half year, is that a good number for us to be thinking about for 2015. I know you are not giving specific guidance but referring back to that proxy statement, is that something that you are comfortable with?

We haven't given you reference half year, we haven't said exactly when we anticipate closing and there is some other moving parts with respect to the lag et cetera. I mean, the analysis that Goldman did was predicated upon our internal plans. So I mean we stand behind those but the percentage of the year and there is a whole bunch of things as we consolidate and the results of that and the financing impact and all those sort of things. I don't think you can simply extrapolate or interpolate for the numbers you have seen. Lisa Gill - JPMorgan: Okay.

So a simple half year convention probably wouldn't be sufficiently robust analysis to kind of capture it. Lisa Gill - JPMorgan: Okay. I appreciate that. Thank you.

Thanks Lisa.

This concludes our Q&A session. I would like to hand the call back to Rick Hans for closing remarks.

Folks that was our final question. Thank you for joining us today. As a reminder, we will report September sales on October 3rd. Until then, thank you for listening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.