Walgreens Outlines Year of Substantial Progress at Annual Meeting

At Walgreens (NYSE: WAG)(NASDAQ: WAG) Annual Shareholder Meeting today, Chairman Alan G. McNally, President and Chief Executive Officer Gregory D. Wasson, and Executive Vice President and CFO Wade D. Miquelon outlined the company’s progress throughout 2009 on its key strategies to grow shareholder value and how Walgreens intends to sustain its profitable growth moving forward. They also provided an overview of how those growth strategies enabled it to successfully navigate through the worst economic downturn in decades.

McNally said, "Greg Wasson and his leadership team are doing a terrific job executing the company’s growth strategy in a highly disciplined and focused way, which has resulted in substantial improvement in Walgreens operating performance during the past year, enormous improvement in free cash flow, and strong shareholder return – with prospects for more of the same going forward.”

Said Wasson, "During fiscal 2009, we pursued new and better ways to connect with our customers and the communities we serve, while achieving strong revenue growth, significant cost reduction and record cash flow of more than $4 billion. We accomplished a number of important milestones in 2009, including opening our 7,000^th drugstore. But we also know we can accomplish much more.”

Key points of the company’s transformation over the past year include:

• Walgreens continued to add to its leadership team with outstanding executives from other industries, promoting a culture of new thinking, innovation and business momentum.
• In the fourth quarter of fiscal 2009, Walgreens began to see the impact of its decision earlier in the year to slow store openings, as the number of openings fell compared to the year-ago quarter. This strategy allows the company to reinvest in its existing store network while growing returns. Store openings are anticipated to slow from 9 percent in 2008 to 4.5 to 5 percent for fiscal 2010, and to 2.5 to 3 percent in fiscal 2011. Even with this slowdown, the company will still be opening more stores than all of its competitors combined are opening today.
• Walgreens made significant progress in enhancing the customer experience and making its stores a destination of choice by beginning to implement Customer Centric Retailing (CCR). The company is updating its store interiors, improving product selection and reducing the number of items to make it easier for shoppers to find what they need. More than 600 stores now operate with the new format, and as many as 3,000 conversions are planned by late fall of 2010. Beginning in March with the next wave of CCR conversions, the company will introduce a new store décor package.
• Consistent with government calls for greater consumer access to quality health care, Walgreens is moving rapidly to become a leading pharmacy, health and wellness provider for consumers, patients, employers and payors. Walgreens is offering patients 90-day prescriptions at its retail pharmacies to promote better treatment of chronic disease. The company also continues to play a vital role in helping consumers protect themselves from both seasonal flu and the H1N1 flu virus with more than 17,000 immunizing pharmacists, nurse practitioners, registered nurses and physician assistants providing flu vaccinations. Since September, Walgreens has immunized nearly 5.5 million people for the seasonal flu and more than 1 million people for H1N1 flu. All 7,100 Walgreens pharmacies and 350 Take Care Clinics continue to offer H1N1 vaccinations every day to help prevent a potential third wave of H1N1 activity.

• Walgreens is helping companies reduce their overall health care costs by going directly to employers like Caterpillar Inc. with proprietary, transparent Walgreens pricing for prescription drugs.
• The company also is tailoring its unique set of pharmacy, health and wellness services to the needs of employers, managed care companies and pharmacy benefit managers. Two examples are recent agreements with Health Care Service Corporation and with Highmark Blue Cross and Blue Shield, headquartered in Pittsburgh. Health Care Service Corporation (HCSC) operates through its Blue Cross and Blue Shield plans in Illinois, New Mexico, Oklahoma and Texas.
  Next month Walgreens will open a Take Care Health worksite health center at the Chicago headquarters of Health Care Service Corporation. The health center will be staffed by a part-time physician, nurse practitioner, registered nurse and front-desk registrar to serve about 5,000 employees. "This outstanding new facility will provide onsite convenience – helping our employees take even better care of their health,” said Pat Hemingway Hall, president and CEO of Health Care Service Corporation. "Not only will this lead to a healthier and more productive work force, but it also will serve to lower overall health care costs.”
  Walgreens also recently expanded its relationship with Highmark Blue Cross and Blue Shield, for which it currently is a provider of specialty and home infusion services for their members. Walgreens now also offers Highmark employees access to worksite health centers and pharmacies at their Pittsburgh and Camp Hill, Penn., offices.
• Through its "Rewiring for Growth” initiative, Walgreens remains on track to align its costs, culture and capabilities with its growth strategies. The company expects to deliver $500 million in cost savings in fiscal 2010 and $1 billion in annual cost savings in fiscal 2011. Much of the foundation for those savings was established in fiscal 2009.

"As we marked our 35^th consecutive year of record sales in 2009, we expanded our position as America’s most convenient provider of consumer goods and services, and pharmacy, health and wellness services,” said Wasson. "Challenging times can present significant business opportunities for strong companies like ours, and we believe we are well-positioned to emerge as a leader in pharmacy, health and wellness services.”

One of those opportunities is today’s announcement that Walgreens has agreed to acquire the pharmacy business and certain other assets of 25 Snyder’s Drug Stores in Minnesota. Walgreens will acquire and continue to operate certain Snyder’s locations, and will purchase prescription files from the other Snyder’s pharmacies and transfer them to nearby Walgreens pharmacies.

Wasson also provided an update on the progress of a number of key initiatives, including:

• A new branding campaign with the tagline, "Walgreens. There’s a way.”
• Re-launching Walgreens.com with an easier way to manage prescriptions online, new photo service enhancements, new mobile applications, additional product resources and thousands of health products available exclusively online, and interactive tools to help consumers better understand and manage their health.
• Transforming community pharmacy, including centralized operations, which is expected to increase the time pharmacists spend with patients and reduce the cost of filling prescriptions.
• Walgreens Optimal Wellness™ program, an innovative self-care educational program for people with chronic conditions that will initially focus on people with type 2 diabetes. First announced earlier today, Walgreens Optimal Wellness™ is a significant step for Walgreens and the health care industry that capitalizes on the power of face-to-face interaction. The core of the approach features Walgreens health care providers, including community pharmacists and Take Care nurse practitioners, leading a program of individual health coaching and diabetes counseling personalized to meet patients’ needs.
• Leading the way in delivering cost-effective, convenient, quality care to people at home through its home infusion services. Walgreens is the largest provider of home infusion services in the country.
• Continuing to grow its Health and Wellness division, which now encompasses more than 700 in-store clinics and worksite health centers.

Miquelon discussed Walgreens long-term financial objectives and described how the company’s strategies are designed to improve returns for shareholders. "We’re positioned with the right strategies and key assets to take advantage of growth opportunities that provide attractive returns,” he said. "We believe the initiatives and progress that we outlined today will benefit investors through accelerated earnings growth, robust cash flow and continued dividend increases and share repurchases.”

McNally concluded, "With the fundamental strengths of our company developed over more than a century – the best, most convenient store network in America, our truly iconic and trusted brand, our strong balance sheet and financial flexibility – Walgreens has an exceptional opportunity to emerge from both the severe economic downturn and the changes under way in the country’s health care system in an even stronger position, with greater market share and prospects for strong, profitable and sustained growth.”

Nominees to Walgreens board of directors include:

• Steven A. Davis, Chairman and Chief Executive Officer of Bob Evans Farms Inc.
• William C. Foote, Chairman of the Board and Chief Executive Officer of USG Corporation
• Mark P. Frissora, Chairman of the Board and Chief Executive Officer of Hertz Global Holdings
• Alan G. McNally, Chairman of the Board of Walgreen Co.
• Nancy M. Schlichting, President and Chief Executive Officer of the Henry Ford Health System
• David Y. Schwartz, Independent business advisor and consultant, and former Partner at Arthur Andersen LLP.
• Alejandro Silva, Chairman and Chief Executive Officer of Evans Food Group, Inc.
• James A. Skinner, Vice Chairman and Chief Executive Officer of McDonald's Corporation
• Gregory D. Wasson, President and Chief Executive Officer of Walgreen Co.

Eight of the nine board members are independent, consistent with the requirement in the company’s governance guidelines that a majority be independent.

At the meeting, three long-time members of the board of directors retired. Charles R. "Cork” Walgreen III, grandson of the company’s founder, stepped down after serving on the board for 46 years. Longstanding directors Cordell Reed and Marilou M. von Ferstel also retired from the board.

McNally said, "Our appreciation can never be adequately expressed for all Cork has done for Walgreen Co. – our record of sustained success over many years, our outstanding assets and our culture of honesty and fair dealing. I want to thank Cordell and Marilou for their invaluable insights and perspectives, and for enriching the board’s deliberations for many years. We are grateful to each of these outstanding directors for their dedicated service and wish them the very best in retirement.”

Walgreens (www.walgreens.com) is the nation’s largest drugstore chain with fiscal 2009 sales of $63 billion. The company operates 7,149 drugstores in all 50 states, the District of Columbia and Puerto Rico. Walgreens provides the most convenient access to consumer goods and services and cost-effective pharmacy, health and wellness services in America through its retail drugstores, Walgreens Health Services division and Walgreens Health and Wellness division. Walgreens Health Services assists pharmacy patients and prescription drug and medical plans through Walgreens Health Initiatives Inc. (a pharmacy benefit manager), Walgreens Mail Service Inc., Walgreens Home Care Inc., Walgreens Specialty Pharmacy LLC and SeniorMed LLC (a pharmacy provider to long-term care facilities). Walgreens Health and Wellness division includes Take Care Health Systems, the largest and most comprehensive manager of worksite health and wellness centers and in-store convenient care clinics, with more than 700 locations throughout the country.