Key questions from the second quarter earnings call conducted by Walgreen Company on March 24, 2008.

Mark Wiltamuth (Morgan Stanley): How much of the SG&A improvements were from legal and insurance and how much more SG&A improvement you could have?

Jeff Rein: Approximately 60% of our reduction was on the payroll side, about 40% was the legal and insurance experienced. Our goal as is that 11-12% increase in SG&A. There is more room; we have taken some actions on 24 hour stores where they have not made sense. We do look at the numbers, we look at the trade area and we want to make sure that we serve people properly. Where there is an opportunity to save dollars and serve we would reduce our 24 hour stores.

Mark Wiltamuth (Morgan Stanley): It seems like the worst of the mac-ing out trends in the generic pipeline should be over in February. Could you talk about that?

Jeff Rein: This was a weaker year than normal for brand going to generic and it is still weak towards the end of the year; however in 2009 and 2010 in particular it picks up nicely. We do try to take advantage of all brands to generic opportunities but once again it is just weaker this year as it has been in the past.

Bill Rudolphsen: In the third quarter of last year our gross profit increase was 16% so that still is a challenging comparison and it gets more favorable in the fourth quarter.

Mark Miller (William Blair & Company): Could you share more on the Prime Therapeutics contract as it relates to the timing?

Greg Wasson: We are excited to have been chosen by Prime Therapeutics for this exclusive opportunity. As far as the timing it will be somewhat hard to predict because most of these plans will be phased down over time. We think that over time that most if not many of the Blues will begin to use Prime Therapeutics product. With any large contract, the first thing we are going to want to do is to make sure that we execute the first plan or two that come on board flawlessly, we know that Prime and the Blues will expect that. As far as the financial impact, it is hard to predict because the plans will roll out over time. It is a huge opportunity because of the significant specialty spend these Blues have, but hard to expect or to predict. We have plenty of capacity and if you think back at some of our recent acquisitions a year and a half ago we acquired Medmark for just that reason, we acquired management expertise as well as capacity to scale. With Option Care last year with our national infusion capabilities we have plenty of capacity.

Stan Blaylock: We have capacity by virtue of our dedicated central fulfillment facilities in both Pittsburgh as well as the Ann Arbor operation which we have out of Option Care. We also now have a dedicated specialty pharmacy facility in Portland Oregon. We have plenty of capacity to handle this and are looking forward to working with Prime who chose us because we have a high quality independent service offering that meshes nicely with the high quality integrated medical and pharmacy services they are trying to provide to their customer base.

Mark Miller (William Blair & Company): As you think about the easier comparisons coming up it is a Walgreens contracting on a two year basis a low 30% rate which averaging across the two years is about in line with your long term growth rate. Do you think about that continuing into the back half of the year?

Bill Rudolphsen: Our long term goal is to achieve the earnings growth that we have achieved in the past. I would again point to the third quarter as a challenging comparison considering the significant gross profit improvement we experienced last year and fourth quarter gets easier as our earnings fell last year in the fourth quarter.

John Heinbockel (Goldman Sachs): Can you speak to performance of new stores specifically return on capital?

Bill Rudolphsen: We did illustrate some return on capital numbers in that slide last quarter and we do see it increasing over time.

John Heinbockel (Goldman Sachs): Do you think returns go down over time?

Jeff Rein: There are fabulous opportunities to continue to expand. As you know the age rate, nothing is going to slow that down, people are going to continue to get older, they are going to continue to take medications which we are a major provider, they are going to continue to use pharmacy services whether that is specialty, immunization, flu shots and they like the convenience of the smaller store. You will even see some of the competition now trying to experiment with smaller stores because as the population gets older they want accessible healthcare, they want accessible service and they want it to be convenient at the same time. We are well positioned. The stores we are building are in A locations, great demographics, great trade areas, there is no reason to think that we are going to do any worse.

John Heinbockel (Goldman Sachs): What is your capacity on stores, what is the big limiting factor today, just people or locations?

Jeff Rein: Locations are not a problem. I would say it does come back to the people; we want to make sure that we have the proper trained personnel to staff the stores, not only in the front end but in the pharmacies. We want to balance to make sure we get the best size, we do not want to over reach and be pressured to make some number, we do want to make sure we get that return on investment that we have been targeting and we will keep going after the best of the best.

Ed Kelly (Credit Suisse): Your gross margin was down less than it was in the first quarter especially on a FIFO basis. Is this because the pharmacy margin was up more year over year than it was in the first quarter or is it because the front ends margin declined less?

Bill Rudolphsen: We are seeing better margins in the pharmacy; I do believe that that will continue. We will see a bigger increase in 2009 and 2010 as generics come out in the marketplace. The front end, it was a challenge in the quarter, we did have a softer seasonal season in December, we did see sales of lower margin items as the economy tightens, we will continue to see some of that. In addition we were more promotional, especially in the digital photo area.

Ed Kelly (Credit Suisse): Your front end comps historically grew at an average rate of about 3% prior to 2004. Now the growth over the last few years was in the 5%-6% range but it has decelerated recently. Which of these growth rates are you seeing a reversion back to the mean?

Jeff Rein: A reversion to the mean does happen. One of the things to consider over the past couple of years is that people felt wealthy with the stock market, their houses and all that sort of thing. Their discretionary spending was up. Right now they are being careful on the type of products they buy, they are trading down, and we are seeing more ad sales versus the everyday basic sale. Once again people are looking for that value. We will continue to do well based on our convenience and access but people are looking for that sharp price, that value price that makes the difference.