UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)


þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





FOR
THE QUARTER ENDED NOVEMBER 30, 2008





OR





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from _______to _______








Commission
File Number


1-604










WALGREEN
CO.


(Exact
name of registrant as specified in its charter)








Illinois
            36-1924025(State
      of Incorporation)
            (I.R.S.
      Employer Identification No.)





200 Wilmot Road, Deerfield,
      Illinois
            60015(Address
      of principal executive offices)
            (Zip
      Code)





(847)
914-2500


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes
      þ       No
       ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definitions of "large accelerated filer”, “accelerated
filer" and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.


Large
      accelerated filer þ                                                                                        Accelerated
      Filer  ̈
              Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting
      company)                Smaller
      reporting company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
       ̈        No
      þ





The
number of shares outstanding of the registrant's Common Stock, $.078125 par
value, as of November 30, 2008 was 986,744,871.

















WALGREEN
CO.





FORM
10-Q FOR THE QUARTER ENDED NOVEMBER 30, 2008





TABLE OF
CONTENTS











PART
I.             FINANCIAL
INFORMATION





Item
      1.
            Consolidated
      Condensed Financial Statements (Unaudited)a)
            Balance
      Sheetsb)
            Statements
      of Earningsc)
            Statements
      of Cash Flowsd)
            Notes
      to Financial StatementsItem
      2.
            Management’s
      Discussion and Analysis of Results of Operations and Financial
      ConditionItem
      3.
            Qualitative
      and Quantitative Disclosure about Market RiskItem
      4.
            Controls
      and Procedures








PART
II.           OTHER
INFORMATION





Item
      1.
            Legal
      ProceedingsItem
      2.
            Unregistered
      Sales of Equity Securities and Use of ProceedsItem
      6.
            Exhibits

















PART
1. FINANCIAL INFORMATION








Item
      1.
            WALGREEN
      CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED FINANCIAL
      STATEMENTS





The
consolidated condensed financial statements included herein have been prepared
by the company pursuant to the rules and regulations of the Securities and
Exchange Commission.  The Consolidated Condensed Balance Sheets as of
November 30, 2008, August 31, 2008 and November 30, 2007, the Consolidated
Condensed Statements of Earnings for the three months ended November 30, 2008
and 2007, and the Consolidated Condensed Statements of Cash Flows for the three
months ended November 30, 2008 and 2007, have been prepared without
audit.  Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the company believes
that the disclosures are adequate to make the information presented not
misleading.  It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the company's latest annual report on Form
10-K.





In the
opinion of the company, the consolidated condensed statements for the unaudited
interim periods presented include all adjustments, consisting of normal
recurring adjustments, necessary to present a fair statement of the results for
such interim periods.  Because of the influence of certain holidays,
seasonal and other factors on the company's operations, net earnings for any
interim period may not be comparable to the same interim period in previous
years or necessarily indicative of earnings for the full year.



















WALGREEN
      CO. AND SUBSIDIARIESCONSOLIDATED
      CONDENSED BALANCE SHEETS(UNAUDITED)(In
      millions, except per share amounts)November
      30,
            
            
            August
      31,
            
            
            November
      30,2008
            
            
            2008
            
            
            2007AssetsCurrent
      Assets:Cash
      and cash equivalents
            
            $
            886
            
            
            $
            443
            
            
            $
            295Accounts
      receivable, net
            
            
            2,776
            
            
            
            2,527
            
            
            
            2,247Inventories
            
            
            8,298
            
            
            
            7,249
            
            
            
            7,553Other
      current assets
            
            
            199
            
            
            
            214
            
            
            
            240Total
      Current Assets
            
            
            12,159
            
            
            
            10,433
            
            
            
            10,335Non-Current
      Assets:Property
      and equipment, at cost, less accumulated depreciation and
      amortization
            
            
            10,150
            
            
            
            9,775
            
            
            
            8,502Goodwill
            
            
            1,433
            
            
            
            1,438
            
            
            
            1,066Other
      non-current assets
            
            
            771
            
            
            
            764
            
            
            
            573Total
      Non-Current Assets
            
            
            12,354
            
            
            
            11,977
            
            
            
            10,141Total
      Assets
            
            $
            24,513
            
            
            $
            22,410
            
            
            $
            20,476Liabilities
      & Shareholders' EquityCurrent
      Liabilities:Short-term
      borrowings
            
            $
            1,080
            
            
            $
            83
            
            
            $
            1,176Trade
      accounts payable
            
            
            5,026
            
            
            
            4,289
            
            
            
            4,107Accrued
      expenses and other liabilities
            
            
            2,246
            
            
            
            2,272
            
            
            
            2,085Income
      taxes
            
            
            144
            
            
            
            -
            
            
            
            178Total
      Current Liabilities
            
            
            8,496
            
            
            
            6,644
            
            
            
            7,546Non-Current
      Liabilities:Long-term
      debt
            
            
            1,337
            
            
            
            1,337
            
            
            
            20Deferred
      income taxes
            
            
            154
            
            
            
            150
            
            
            
            107Other
      non-current liabilities
            
            
            1,395
            
            
            
            1,410
            
            
            
            1,313Total
      Non-Current Liabilities
            
            
            2,886
            
            
            
            2,897
            
            
            
            1,440Shareholders'
      Equity:Preferred
      stock $.0625 par value; authorized 32 million shares, none
      issued
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock $.078125 par value; authorized 3.2 billion shares; issued
      1,025,400,000 at November 30, 2008, August 31, 2008 and November 30,
      2007
            
            
            80
            
            
            
            80
            
            
            
            80Paid-in
      capital
            
            
            593
            
            
            
            575
            
            
            
            569Employee
      stock loan receivable
            
            
            (47
            )
            
            
            (36
            )
            
            
            (58
            )Retained
      earnings
            
            
            14,088
            
            
            
            13,792
            
            
            
            12,390Accumulated
      other comprehensive income (loss)
            
            
            9
            
            
            
            9
            
            
            
            (4
            )Treasury
      stock, at cost; 38,655,129 shares at November 30, 2008, 36,223,782 at
      August 31, 2008 and 34,019,636 at November 30, 2007
            
            
            (1,592
            )
            
            
            (1,551
            )
            
            
            (1,487
            )Total
      Shareholders' Equity
            
            
            13,131
            
            
            
            12,869
            
            
            
            11,490Total
      Liabilities & Shareholders' Equity
            
            $
            24,513
            
            
            $
            22,410
            
            
            $
            20,476






The
accompanying Notes to Consolidated Condensed Financial


Statements
are an integral part of these Statements.







WALGREEN
      CO. AND SUBSIDIARIESCONSOLIDATED
      CONDENSED STATEMENTS OF EARNINGS(UNAUDITED)(In
      millions, except per share amounts)Three
      Months Ended November 30,2008
            
            
            2007Net
      sales
            
            $
            14,947
            
            
            $
            14,028Cost
      of sales
            
            
            10,796
            
            
            
            10,107Gross
      profit
            
            
            4,151
            
            
            
            3,921Selling,
      general and administrative expenses
            
            
            3,482
            
            
            
            3,193Operating
      income
            
            
            669
            
            
            
            728Interest
      expense, net
            
            
            15
            
            
            
            -Earnings
      before income tax provision
            
            
            654
            
            
            
            728Income
      tax provision
            
            
            246
            
            
            
            272Net
      earnings
            
            $
            408
            
            
            $
            456Net
      earnings per common share – basic
            
            $
            .41
            
            
            $
            .46Net
      earnings per common share – diluted
            
            $
            .41
            
            
            $
            .46Dividends
      declared
            
            $
            .1125
            
            
            $
            .0950Average
      shares outstanding
            
            
            988.6
            
            
            
            991.3Dilutive
      effect of stock options
            
            
            1.6
            
            
            
            6.2Average
      shares outstanding assuming dilution
            
            
            990.2
            
            
            
            997.5








The
accompanying Notes to Consolidated Condensed Financial


Statements
are an integral part of these Statements.












WALGREEN
      CO. AND SUBSIDIARIESCONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS(UNAUDITED)(In
      millions)Three
      Months Ended November 30,2008
            
            
            2007Cash Flows from Operating
      Activities:Net
      earnings
            
            $
            408
            
            
            $
            456Adjustments
      to reconcile net earnings to net cash provided by operating activities
      -Depreciation
      and amortization
            
            
            236
            
            
            
            195Deferred
      income taxes
            
            
            16
            
            
            
            (72
            )Stock
      compensation expense
            
            
            32
            
            
            
            31Income
      tax savings from employee stock plans
            
            
            -
            
            
            
            1Other
            
            
            4
            
            
            
            3Changes
      in operating assets and liabilities -Accounts
      receivable, net
            
            
            (313
            )
            
            
            (158
            )Inventories
            
            
            (1,036
            )
            
            
            (753
            )Other
      assets
            
            
            15
            
            
            
            (9
            )Trade
      accounts payable
            
            
            736
            
            
            
            373Accrued
      expenses and other liabilities
            
            
            21
            
            
            
            2Income
      taxes
            
            
            210
            
            
            
            322Other
      non-current liabilities
            
            
            (17
            )
            
            
            (1
            )Net
      cash provided by operating activities
            
            
            312
            
            
            
            390Cash Flows from Investing
      Activities:Additions
      to property and equipment
            
            
            (638
            )
            
            
            (490
            )Proceeds
      from sale of assets
            
            
            15
            
            
            
            5Business
      and intangible asset acquisitions, net of cash received
            
            
            (61
            )
            
            
            (48
            )Net
      proceeds from corporate-owned life insurance policies
            
            
            -
            
            
            
            2Net
      cash used for investing activities
            
            
            (684
            )
            
            
            (531
            )Cash Flows from Financing
      Activities:Net
      proceeds from short-term borrowings
            
            
            998
            
            
            
            317Payments
      of debt
            
            
            -
            
            
            
            (29
            )Stock
      purchases
            
            
            (99
            )
            
            
            (78
            )Proceeds
      related to employee stock plans
            
            
            32
            
            
            
            68Cash
      dividends paid
            
            
            (111
            )
            
            
            (94
            )Other
            
            
            (5
            )
            
            
            (3
            )Net
      cash provided by financing activities
            
            
            815
            
            
            
            181Changes in Cash and Cash
      Equivalents:Net
      increase in cash and cash equivalents
            
            
            443
            
            
            
            40Cash
      and cash equivalents at September 1
            
            
            443
            
            
            
            255Cash
      and cash equivalents at November 30
            
            $
            886
            
            
            $
            295








The
accompanying Notes to Consolidated Condensed Financial


Statements
are an integral part of these Statements.











WALGREEN
CO. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS





(1) The
consolidated condensed financial statements include the accounts of the company
and its subsidiaries.  All intercompany transactions have been
eliminated.  The consolidated condensed financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America and include amounts based on management’s prudent
judgments and estimates.  Actual results may differ from these
estimates.  For a complete discussion of all our significant
accounting policies please see our 2008 annual report on Form 10-K.





The
November 30, 2007 balance sheet reflects the reclassification of debt, which was
previously condensed within the accrued expenses and other liabilities line and
other non-current liabilities line.  In addition, software development
costs were reclassified from other non-current assets to property and
equipment.





(2)
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market
basis.  At November 30, 2008, August 31, 2008 and November 30, 2007,
inventories would have been greater by $1,110 million, $1,067 million and $996
million respectively, if they had been valued on a lower of first-in, first-out
(FIFO) cost or market basis.  LIFO inventory costs can only be
determined annually when inflation rates and inventory levels are finalized;
therefore, LIFO inventory costs for interim financial statements are estimated.
Inventory includes product cost, inbound freight, warehousing costs and vendor
allowances not included as a reduction of advertising expense.





(3) The
principal retirement plan for employees is the Walgreen Profit-Sharing
Retirement Trust to which both the company and participating employees
contribute.  The company's contribution, which is determined annually
at the discretion of the Board of Directors, has historically related to pre-tax
income; however, beginning January 1, 2008, a portion of that contribution will
be in the form of a guaranteed match.  The profit-sharing provision
was $58 million for the first quarter compared to $65 million last
year.  The company made no cash or other contributions during the
first quarter of fiscal 2009 or 2008.





(4) The
company granted 16 million and 4 million stock options under the Walgreen Co.
Executive Stock Option Plan and the Walgreen Co. Stock Purchase/Option Plan
(Share Walgreens) for the quarters ended November 30, 2008 and 2007,
respectively. Total stock-based compensation expense was $32 million for the
quarter ended November 30, 2008 compared to $31 million last year.  In
accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R),
compensation expense is recognized on a straight-line basis over the employee's
vesting period or to the employee's retirement eligible date, if
earlier.  For the quarters ended November 30, 2008 and 2007, the
company fully recognized retiree eligible expense of $14 million and $16
million, respectively.  Therefore, the compensation expense for the
quarters ended November 30, 2008 and 2007 are not representative of the
compensation expense for the entire fiscal year.  There have been no
material changes in the assumptions used to compute compensation expense during
the current quarter.





The
company granted 0.5 million restricted stock units under the new Walgreen Co.
Restricted Stock Unit Award Program and 0.5 million performance shares under the
new Walgreen Co. Performance Share Program for the quarter ended November 30,
2008.  In accordance with SFAS No. 123(R), compensation expense is
recognized on a straight line basis based on a three year cliff vesting schedule
for the Restricted Stock Unit Award Program and straight line over a three year
vesting schedule for the Performance Share Program.  For the quarter
ended November 30, 2008 the company recognized $5 million of expense related to
these new plans.





(5) The
company provides certain health insurance benefits for retired employees who
meet eligibility requirements, including age, years of service and date of
hire.  The costs of these benefits are accrued over the period earned.
The company's postretirement health benefit plans are not funded.





Three
      Months Ended November 30,Components of Net Periodic Benefit Costs (In
      millions)
            
            2008
            
            
            2007Service
      cost
            
            $
            3
            
            
            $
            4Interest
      cost
            
            
            7
            
            
            
            6Amortization
      of actuarial loss
            
            
            1
            
            
            
            1Amortization
      of prior service cost
            
            
            (1
            )
            
            
            (1
            )Total
      postretirement benefit cost
            
            $
            10
            
            
            $
            10





(6) The
company guarantees a credit agreement on behalf of SureScripts-RxHub, LLC, which
provides electronic prescription data services.  This credit
agreement, for which SureScripts-RxHub, LLC is primarily liable, has an
expiration date of June 30, 2011.  The liability was $9 million at
November 30, 2008, $8 million at August 31, 2008 and $5 million at November 30,
2007.  The maximum amount of future payments that could be required to
be paid under the guaranty is $25 million, of which $13 million may be
recoverable from another guarantor.  In addition, under certain
circumstances the company may be required to provide an additional guarantee of
up to $10 million, of which $8 million may be recoverable from other
guarantors.  This guarantee arose as a result of a business decision
between parties to ensure that the operations of SureScripts-RxHub, LLC would
have additional support to access financing.  Should
SureScripts-RxHub, LLC default or become unable to pay their debts, the company
would be required to fulfill our portion of this guarantee.





(7)The dilutive effect of
outstanding stock options on earnings per share is calculated using the treasury
stock method.  Stock options are anti-dilutive and excluded from the
earnings per share calculation if the exercise price exceeds the average market
price of the common shares for the periods presented.  At November 30,
2008 and 2007, outstanding options to purchase common shares of 49,251,284 and
11,011,274 were excluded from the calculation.





(8)
Short-term borrowings and long-term debt consists of the following at November
30 (in millions):





2008
            
            
            2007Short-Term
      Borrowings -Commercial
      paper
            
            $
            1,068
            
            
            $
            1,167Current
      maturities of loans assumed through the purchase of land and buildings;
      various interest rates from 3.50% to 8.75%; various maturities from 2009
      to 2035
            
            
            8
            
            
            
            9Other
            
            
            4
            
            
            
            -Total
      short-term borrowings
            
            $
            1,080
            
            
            $
            1,176Long-Term
      Debt -4.875%
      unsecured notes due 2013 net of unamortized discount
            
            $
            1,295
            
            
            $
            -Loans
      assumed through the purchase of land and buildings; various interest rates
      from 3.50% to 8.75%; various maturities from 2009 to 2035
            
            
            50
            
            
            
            291,345
            
            
            
            29Less
      current maturities
            
            
            (8
            )
            
            
            (9
            )Total-long
      term debt
            
            $
            1,337
            
            
            $
            20





In fiscal
2009 and 2008 the company issued commercial paper to support working capital
needs. The short-term borrowings under the commercial paper program had the
following characteristics at November 30 (in millions):





2008
            
            
            2007Balance
      outstanding at end of period
            
            $
            1,068
            
            
            $
            1,167Maximum
      outstanding at any month-end
            
            
            1,068
            
            
            
            1,167Average
      daily short-term borrowings
            
            
            641
            
            
            
            797Weighted-average
      interest rate
            
            
            1.80
            %
            
            
            4.57
            %





The
carrying value of the commercial paper approximates the fair value in both
fiscal years.





In
connection with our commercial paper program, we maintained two unsecured backup
syndicated lines of credit that total $1,200 million.  The first $600
million facility expires on August 10, 2009; the second expires on August 12,
2012.  Our ability to access these facilities is subject to our
compliance with the terms and conditions of the credit facilities, including
financial covenants.  The covenants require us to maintain certain
financial ratios related to minimum net worth and priority debt, along with
limitations on the sale of assets and purchases of investments.  On
October 12, 2007, we entered into an additional $100 million unsecured line of
credit facility and on November 30, 2007, that credit facility was amended and
increased to include an additional $200 million, for a total of $300 million
unsecured credit.  That facility expired on December 31,
2007.  On May 15, 2008, we entered into an additional $500 million
unsecured line of credit facility.  That facility expired on July 31,
2008.  These lines of credit were subject to similar covenants as the
syndicated lines of credit.  The company pays a facility fee to the
financing bank to keep the line of credit facility active.  As of
November 30, 2008, there have been no borrowings against the credit
facilities.  On December 9, 2008, we entered into an additional $175
million line of credit that expires on December 31, 2008.





On July
17, 2008, we issued notes totaling $1,300 million bearing an interest rate of
4.875% paid semiannually in arrears on February 1 and August 1 of each
year, beginning on February 1, 2009. The notes will mature on
August 1, 2013. We may redeem the notes, at any time in whole or from time
to time in part, at our option at a redemption price equal to the greater of:
(1) 100% of the principal amount of the notes to be redeemed; or
(2) the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments of
interest accrued as of the date of redemption), discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate, plus 30 basis points, plus accrued interest
on the notes to be redeemed to, but excluding, the date of
redemption.  If a change of control triggering event occurs, unless we
have exercised our option to redeem the notes, we will be required to offer to
repurchase the notes at a purchase price equal to 101% of the principal amount
of the notes plus accrued and unpaid interest to the date of
purchase.  The notes will be unsecured senior debt obligations and
will rank equally with all other unsecured senior indebtedness. The notes are
not convertible or exchangeable.  Total issuance costs relating to
this offering were $9 million, which included $8 million in underwriting
fees.  The fair value of the notes as of November 30, 2008, was $1,327
million.





(9) The
company is involved in various legal proceedings incidental to the normal course
of business and is subject to various investigations, inspections, audits,
inquiries and similar actions by governmental authorities responsible for
enforcing the laws and regulations to which the company is
subject.   These include a lawsuit for which a $31 million
judgment was entered against the company in October 2006.  The company
has appealed this judgment.





In
addition, on April 16, 2008, the Plumbers and Steamfitters Local No. 7 Pension
Fund filed a putative class action suit against the company and its
former Chief Executive Officer and Chief Operating Officer in the United
States District Court for the Northern District of Illinois.  The suit
was filed on behalf of purchasers of company common stock during the period
between June 25, 2007, and November 29, 2007.   The complaint,
which was amended on October 16, 2008 charges the company and its
former Chief Executive Officer and Chief Operating Officer with violations
of Section 10(b) of the Securities Exchange Act of 1934, claiming that the
company misled investors by failing to disclose declining rates of growth in
generic drug sales and a contract dispute with a pharmacy benefits manager that
allegedly had a negative impact on earnings. The company and the officers named
in the suit believe the allegations are without merit, and intend to defend
against them vigorously.





Management
is of the opinion that although the outcome of these and other litigation and
investigations cannot be forecast with certainty, the final dispositions should
not have a material adverse effect on the company's consolidated financial
position or results of operations.





(10) We
adopted the provisions of SFAS 157, Fair Value Measurementsfor
financial assets and liabilities beginning in the first quarter of fiscal
2009.  We currently do not hold any financial assets or liabilities
that are included within the scope of this statement.  Our debt
instruments are not reported at fair value in our statement of financial
position and as a result, we will continue to report under the guidance of SFAS
107, Disclosures about Fair
Value of Financial Instruments that requires us to disclose the fair
value of our debt in the footnotes.





(11)
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 160, Noncontrolling
Interest in Consolidated Financial Statements – an amendment of Accounting
Research Bulletin No. 51.  The objective of this statement is
to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  The statement significantly changes the accounting for
transactions with minority interest holders.  This statement, which
will be effective for the first quarter of fiscal 2010, is not expected to have
a material impact on our consolidated financial position or results of
operations.





In
December 2007, the FASB issued SFAS No 141(R), Business
Combinations.  This statement establishes principles and
requirements for how the acquirer recognizes and measures identifiable assets
acquired, liabilities assumed and any noncontrolling interest in a business
combination.  In addition the statement provides a revised definition
of a business, shifts from the purchase method to the acquisition method,
expenses acquisition-related transaction costs, recognizes contingent
consideration and contingent assets and liabilities at fair value and
capitalizes acquired in-process research and development. This statement, which
will be effective for the first quarter of fiscal 2010, will be applied
prospectively to business combinations.  In addition, changes in an
acquired entity’s deferred tax assets and uncertain tax positions after the
measurement period will impact income tax expense.





Item
      2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
      OPERATIONS AND FINANCIAL CONDITION








INTRODUCTION





Walgreens
is principally a retail drugstore chain that sells prescription and
non-prescription drugs and general merchandise.  General merchandise
includes, among other things, beauty care, personal care, household items,
candy, photofinishing, greeting cards, convenience foods and seasonal
items.  Customers can have prescriptions filled in retail pharmacies,
as well as through the mail, by telephone and via the Internet.  As of
November 30, 2008, we operated 7,123 locations in 49 states, the District of
Columbia, Guam and Puerto Rico.  Total locations do not include 293
convenient care clinics operated by Take Care Health Systems, Inc.





Number ofLocationsatNovember
      30,Location
      Type
            
            2008
            
            
            2007Drugstores
            
            
            6,630
            
            
            
            6,032Worksite
      Facilities
            
            
            368
            
            
            
            3Home
      Care Facilities
            
            
            110
            
            
            
            91Specialty
      Pharmacies
            
            
            13
            
            
            
            11Mail
      Service Facilities
            
            
            2
            
            
            
            2Total
            
            
            7,123
            
            
            
            6,139





The
drugstore industry is highly competitive.  In addition to other
drugstore chains, independent drugstores and mail order prescription providers,
we also compete with various other retailers including grocery stores,
convenience stores, mass merchants and dollar stores.





The
long-term outlook for prescription utilization is strong due in part to the
aging population and the continued development of innovative drugs that improve
quality of life and control health care costs.  Certain provisions of
the Deficit Reduction Act of 2005 seek to reduce federal spending by altering
the Medicaid reimbursement formula for multi-source (i.e., generic)
drugs.  These changes are expected to result in reduced Medicaid
reimbursement rates for prescription drugs.





We
believe deteriorating economic conditions and heightened turmoil in the
financial markets have adversely impacted discretionary consumer spending,
including spending at retail drugstores.  It is unclear the extent to which
these conditions will persist and what overall impact they will have on future
consumer spending.





Front-end
sales have continued to grow due to strengthening core categories, such as
consumables, over-the-counter non-prescription drugs, household products and
beauty care items.  Walgreens strong name recognition continues to
drive private brand sales, which are included in these core
categories.





We
continue to expand into new markets and increase penetration in existing
markets. To support our growth, we are investing in prime locations, technology
and customer service initiatives.  Retail organic growth continues to
be our primary growth vehicle; however, consideration is given to retail and
other acquisitions that provide a unique opportunity and strategic fit for our
business.





We are
currently engaged in company-wide strategic initiatives to broaden
access to our products and services, enhance the customer experience for our
shoppers, patients and payors and reduce costs to improve
productivity.  These strategies are intended to enable us to provide
the most convenient access to consumer goods and services, and pharmacy and
health and wellness services; offer a consistent customer experience across all
channels; and ensure that cost, culture and capabilities support and enable our
strategies.  On October 30, 2008, we announced an initiative to
improve efficiency and effectiveness, which targets $1 billion in annual cost
savings by fiscal 2011.  In conjunction with this initiative, we
anticipate incurring total costs of approximately $300 million to $400 million
over fiscal 2009 and 2010.  During the current quarter we incurred
approximately $17 million in pre-tax costs associated with these
programs.  There were no significant savings realized in the current
quarter.









OPERATING
STATISTICS





Percentage
      ChangesThree
      Months Ended November 30, 2008
            
            
            Three
      Months Ended November 30, 2007Net
      Sales
            
            
            6.6
            
            
            
            10.4Net
      Earnings
            
            
            (10.4
            )
            
            
            5.5Comparable
      Drugstore Sales
            
            
            1.7
            
            
            
            5.4Prescription
      Sales
            
            
            6.2
            
            
            
            11.1Comparable
      Drugstore Prescription Sales
            
            
            2.6
            
            
            
            5.9Front-End
      Sales
            
            
            7.2
            
            
            
            9.1Comparable
      Drugstore Front-End Sales
            
            
            0.0
            
            
            
            4.6Gross
      Profit
            
            
            5.9
            
            
            
            9.7Selling,
      General and Administrative Expenses
            
            
            9.1
            
            
            
            10.0




Percent
      to Net SalesThree
      Months Ended November 30, 2008
            
            
            Three
      Months Ended November 30, 2007Gross
      Margin
            
            
            27.8
            
            
            
            28.0Selling,
      General and Administrative Expenses
            
            
            23.3
            
            
            
            22.8




Other
      StatisticsThree
      Months Ended November 30, 2008
            
            
            Three
      Months Ended November 30, 2007Prescription
      Sales as a % of Net Sales
            
            
            65.9
            
            
            
            66.1Third
      Party Sales as a % of Total Prescription Sales
            
            
            95.4
            
            
            
            95.1Total
      Number of Prescriptions (in millions)
            
            
            156
            
            
            
            151Total
      Number of Locations
            
            
            7,123
            
            
            
            6,139











RESULTS
OF OPERATIONS





Net
earnings for the first quarter ended November 30, 2008 were $408 million or
$0.41 per share (diluted).  This was a 10.4% decrease over the same
quarter last year.  The net earnings decrease resulted from lower
gross margins, higher selling, general and administrative expenses as a
percentage of sales and higher interest costs.





Net sales
for the first quarter increased by 6.6% to $14,947 million.  Drugstore
sales increases resulted from sales gains in existing stores and added sales
from new stores, each of which include an indeterminate amount of market-driven
price changes.  Sales in comparable drugstores were up 1.7% for the
quarter.  Comparable drugstores are defined as those that have been
open for at least twelve consecutive months without closure for seven or more
consecutive days and without a major remodel or a natural disaster in the past
twelve months.  Relocated and acquired stores are not included as
comparable stores for the first twelve months after the relocation or
acquisition.  We operated 7,123 locations as of November 30, 2008,
compared to 6,139 a year earlier.





Prescription
sales increased by 6.2% for the first quarter and represented 65.9% of total
sales.  In the prior year, prescription sales increased 11.1% and
comprised 66.1% of total sales.  Comparable drugstore prescription
sales were up 2.6% in the current quarter.  The effect of generic
drugs, which have a lower retail price, replacing brand name drugs reduced
prescription sales by 2.3% in the current quarter versus 4.2% last year, while
the effect on total sales was a reduction of 1.4% in the current quarter versus
2.6% in the prior year.  Third party sales, where reimbursement is
received from managed care organizations as well as government and private
insurance, were 95.4% of prescription sales compared to 95.1% a year
ago.  The total number of prescriptions filled for the quarter was
approximately 156 million compared to 151 million for the same period last
year.





Front-end
sales increased 7.2% for the current quarter and were 34.1% of total
sales.  In comparison, prior year front end sales increased 9.1% and
comprised 33.9% of total sales.  In addition to new stores, the
increase is due in part to improved sales dollars related to consumables,
non-prescription drugs and household items.  Comparable front-end
sales were flat in the current quarter compared to a 4.6% increase last
year.









Gross
margin as a percent of sales was 27.8% in the current quarter compared to 28.0%
last year.  Overall margins were negatively impacted by non-retail
businesses, which have lower margins and are becoming a greater part of the
total business and a higher provision for LIFO.  This was partially
offset by an improvement in retail pharmacy margins, which were positively
influenced by generic drug sales, but to a lesser extent negatively influenced
by the growth in third party pharmacy sales and lower market driven
reimbursements.  Front-end margins remained essentially flat from the
prior year.





We use
the LIFO method of inventory valuation, which can only be determined annually
when inflation rates and inventory levels are finalized; therefore, LIFO
inventory costs for the interim financial statements are
estimated.  Cost of sales included a LIFO provision of $43 million for
the current quarter compared to a provision of $27 million a year
ago.  Our estimated annual inflation rate was 2.25% for the current
quarter compared to 1.50% a year ago.  The increase is attributed to
higher anticipated inflation for non-prescription drugs and front-end
merchandise.





Gross
profit increased 5.9% in this year’s first quarter versus 9.7% last
year.  The change from the prior year is primarily due to lower sales
growth.





Selling,
general and administrative expenses as a percentage of sales were 23.3% for the
current quarter compared to 22.8% a year ago.  Higher occupancy
expenses, store closing costs, amortization expenses and other miscellaneous
expenses were partially offset by lower employee benefit plan expenses and store
direct expenses as a percentage of sales.





Selling,
general and administrative expenses increased 9.1% this year compared to 10.0% a
year ago primarily due to store level salaries and expenses.  Although
store level salaries and expenses increased at a faster rate than sales, the
rate of growth for the current year was lower than a year ago.





Interest
was a net expense of $15 million in the current quarter compared to a net
expense of zero in the prior year.  The increase in interest expense
is primarily attributed to the issuance of long-term debt.  The
current year’s interest expense is net of $5 million, which was capitalized to
construction projects versus $7 million capitalized last
year.





The
effective tax rate was 37.6% for the first quarter as compared to 37.4% for a
year ago.  The increase is attributed to additional provisions for
state tax matters.








CRITICAL
ACCOUNTING POLICIES





The
consolidated condensed financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and
include amounts based on management's prudent judgments and
estimates.  Actual results may differ from these
estimates.  Management believes that any reasonable deviation from
those judgments and estimates would not have a material impact on our
consolidated financial position or results of operations.  To the
extent that the estimates used differ from actual results, however, adjustments
to the statement of earnings and corresponding balance sheet accounts would be
necessary.  These adjustments would be made in future
statements.  For a complete discussion of all our significant
accounting policies please see our 2008 annual report on Form
10-K.  Some of the more significant estimates include goodwill and
other intangible asset impairment, allowance for doubtful accounts, vendor
allowances, liability for closed locations, liability for insurance claims, cost
of sales, and income taxes.  We use the following methods to determine
our estimates:





Goodwill
      and other intangible asset impairment -Goodwill
      and other indefinite-lived intangible assets are not amortized, but are
      evaluated for impairment annually or whenever events or changes in
      circumstances indicate that the value of a certain asset may be
      impaired.  The process of evaluating goodwill for impairment
      involves the determination of fair value.  Inherent in such fair
      value determinations are certain judgments and estimates, including the
      interpretation of economic indicators and market valuations and
      assumptions about our business plans.  We have not made any
      material changes to the method of evaluating goodwill and intangible asset
      impairments during the last three years.  Based on current
      knowledge, we do not believe there is a reasonable likelihood that there
      will be a material change in the estimate or assumptions used to determine
      impairment.Allowance
      for doubtful accounts -The
      provision for bad debt is based on both specific receivables and historic
      write-off percentages.  We have not made any material changes to
      the method of estimating our allowance for doubtful accounts during the
      last three years.  Based on current knowledge, we do not believe
      there is a reasonable likelihood that there will be a material change in
      the estimate or assumptions used to determine the
    allowance.Vendor
      allowances -Vendor
      allowances are principally received as a result of purchase levels, sales
      or promotion of vendors' products.   Allowances are
      generally recorded as a reduction of inventory and are recognized as a
      reduction of cost of sales when the related merchandise is
      sold.  Those allowances received for promoting vendors' products
      are offset against advertising expense and result in a reduction of
      selling, general and administrative expenses to the extent of advertising
      incurred, with the excess treated as a reduction of inventory
      costs.  We have not made any material changes to the method of
      estimating our vendor allowances during the last three
      years.  Based on current knowledge, we do not believe there is a
      reasonable likelihood that there will be a material change in the estimate
      or assumptions used to determine vendor
  allowances.


Liability
      for closed locations -The
      liability is based on the present value of future rent obligations and
      other related costs (net of estimated sublease rent) to the first lease
      option date.  We have not made any material changes to the
      method of estimating our liability for closed locations during the last
      three years.  Based on current knowledge, we do not believe
      there is a reasonable likelihood that there will be a material change in
      the estimate or assumptions used to determine the
    liability.Liability
      for insurance claims -The
      liability for insurance claims is recorded based on estimates for claims
      incurred and is not discounted.  The provisions are estimated in
      part by considering historical claims experience, demographic factors and
      other actuarial assumptions.  We have not made any material
      changes to the method of estimating our liability for insurance claims
      during the last three years.  Based on current knowledge, we do
      not believe there is a reasonable likelihood that there will be a material
      change in the estimate or assumptions used to determine the
      liability.Cost
      of sales -Drugstore
      cost of sales is derived based on point-of-sale scanning information with
      an estimate for shrinkage and adjusted based on periodic
      inventories.  Inventories are valued at the lower of cost or
      market determined by the LIFO method.  We have not made any
      material changes to the method of estimating cost of sales during the last
      three years.  Based on current knowledge, we do not believe
      there is a reasonable likelihood that there will be a material change in
      the estimate or assumptions used to determine cost of
    sales.Income
      Taxes -We
      are subject to routine income tax audits that occur periodically in the
      normal course of business.  U.S. federal, state and local and
      foreign tax authorities raise questions regarding our tax filing
      positions, including the timing and amount of deductions and the
      allocation of income among various tax jurisdictions. In evaluating the
      tax benefits associated with our various tax filing positions, we record a
      tax benefit for uncertain tax positions using the highest cumulative tax
      benefit that is more likely than not to be realized.
      Adjustments are made to our liability for unrecognized tax benefits in the
      period in which we determine the issue is effectively settled with the tax
      authorities, the statute of limitations expires for the return containing
      the tax position or when more information becomes available. Our liability
      for unrecognized tax benefits, including accrued penalties and interest,
      is included in other long-term liabilities on our consolidated balance
      sheets and in income tax expense in our consolidated statements of
      earnings.
              
              In
      determining our provision for income taxes, we use an annual effective
      income tax rate based on full year income, permanent differences between
      book and tax income, and statutory income tax rates. The effective income
      tax rate also reflects our assessment of the ultimate outcome of tax
      audits. Discrete events such as audit settlements or changes in tax laws
      are recognized in the period in which they occur.  Based on
      current knowledge, we do not believe there is a reasonable likelihood that
      there will be a material change in the estimate or assumptions used to
      determine income taxes.








LIQUIDITY
AND CAPITAL RESOURCES





Cash and
cash equivalents were $886 million at November 30, 2008, compared to $295
million at November 30, 2007.  Short-term investment objectives are to
minimize risk, maintain liquidity and maximize after-tax yields.  To
attain these objectives, investment limits are placed on the amount, type and
issuer of securities.  Investments are principally in U.S. Treasury
market funds.





Net cash
provided by operating activities was $312 million compared to $390 million a
year ago.  The decrease is attributed to lower net earnings, decreased
cash from accounts receivable and inventories partially offset by an increase in
cash from accounts payable.  Cash provided by operations is the
principal source of funds for expansion, acquisitions, remodeling programs,
dividends to shareholders and stock repurchases.  In fiscal 2009, we
supplemented cash provided by operations with short-term
borrowings.





Net cash
used for investing activities was $684 million versus $531 million last
year.  Additions to property and equipment were $638 million compared
to $490 million last year.  During the current quarter we added a
total of 220 locations (189 net) compared to 169 last year (142
net).  There were 59 owned locations added during the quarter and 82
under construction at November 30, 2008 versus 53 owned locations added and 60
under construction as of November 30, 2007.





Drugstores
            
            
            Worksites
            
            
            Home
      Care
            
            
            Specialty
      Pharmacy
            
            
            Mail
      Service
            
            
            TotalAugust
      31, 2008
            
            
            6,443
            
            
            
            364
            
            
            
            115
            
            
            
            10
            
            
            
            2
            
            
            
            6,934New/Relocated
            
            
            200
            
            
            
            2
            
            
            
            1
            
            
            
            3
            
            
            
            -
            
            
            
            206Acquired
            
            
            12
            
            
            
            2
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            14Closed/Replaced
            
            
            (25
            )
            
            
            -
            
            
            
            (6
            )
            
            
            -
            
            
            
            -
            
            
            
            (31
            )November
      30, 2008
            
            
            6,630
            
            
            
            368
            
            
            
            110
            
            
            
            13
            
            
            
            2
            
            
            
            7,123










Capital
expenditures throughout fiscal 2009 are expected to be $1.8 billion, excluding
business acquisitions.  We expect to open approximately 540 new
drugstores in fiscal 2009, with a net increase of approximately 475 drugstores
and anticipate having a total of more than 7,000 drugstores in
2010.  We intend to increase new drugstore organic growth between 4.0
percent and 4.5 percent in fiscal 2010 and between 2.5 percent and 3.0 percent
in 2011.  In the first quarter, we added a total of 220 locations, of
which 200 were new or relocated drugstores, with a net gain of 187 drugstores
after relocations and closings. We are continuing to relocate stores to more
convenient and profitable freestanding locations.  In addition to new
stores, expenditures are planned for distribution centers and
technology.  A new distribution center in Windsor, Connecticut is
anticipated to open in the current fiscal year.





Net cash
provided by financing activities was $815 million compared to $181 million last
year.  Net proceeds from short-term borrowings during the current
period were $998 million compared to $317 million a year ago.  Shares
totaling $99 million were purchased to support the needs of the employee stock
plans during the current period as compared to $78 million a year ago. On
January 10, 2007, a new stock repurchase program (“2007 repurchase program”) of
up to $1,000 million was announced, to be executed over four
years.  No repurchases were made during the current or prior year’s
quarter and we do not anticipate executing stock repurchases under the 2007
repurchase program while having short-term debt outstanding.  We will
continue to repurchase shares to support the needs of the employee stock
plans.   In the first three months of the current year, we had
proceeds related to employee stock plans of $32 million versus $68 million for
the same period last year.  Cash dividends paid were $111 million
during the first three months versus $94 million for the same period a year
ago.





We had
$1,068 million of commercial paper outstanding at a weighted average interest
rate of 1.80% at November 30, 2008.  In connection with our commercial
paper program, we maintain two unsecured backup syndicated lines of credit that
total $1,200 million.  The first $600 million facility expires on
August 10, 2009, the second on August 12, 2012.  Our ability to access
these facilities is subject to our compliance with the terms and conditions of
the credit facilities, including financial covenants.  The covenants
require us to maintain certain financial ratios related to minimum net worth and
priority debt, along with limitations on the sale of assets and purchases of
investments.  As of November 30, 2008 we were in compliance with all
such covenants.  The company pays a facility fee to the financing bank
to keep this line of credit facility active.  We do not expect any
borrowings under these facilities, together with our outstanding commercial
paper, to exceed $1,200 million.  On December 9, 2008, we entered into
an additional $175 million line of credit that expires on December 31,
2008.





Our
current credit ratings are as follows:





Rating
      Agency
            
            Long-Term
      Debt Rating
            
            Outlook
            
            Commercial
      Paper Rating
            
            OutlookMoody's
            
            
            A2
            
            Stable
            
            
            P-1
            
            StableStandard
      & Poor's
            
            
            A+
            
            Stable
            
            
            A-1
            
            Stable





In
assessing our credit strength, both Moody's and Standard & Poor's consider
our business model, capital structure, financial policies and financial
statements.  Our credit ratings impact our future borrowing costs,
access to capital markets and operating lease costs.







CONTRACTUAL
OBLIGATIONS AND COMMITMENTS





The
following table lists our contractual obligations and commitments as of November
30, 2008:





Payments
      Due by Period (In Millions)Total
            
            
            Less
      than 1 Year
            
            
            1-3
      Years
            
            
            3-5
      Years
            
            
            Over
      5 YearsOperating
      leases (1)
            
            $
            33,807
            
            
            $
            1,849
            
            
            $
            3,941
            
            
            $
            3,849
            
            
            $
            24,168Purchase
      obligations (2):Open
      inventory purchase orders
            
            
            1,438
            
            
            
            1,438
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
      estate development
            
            
            810
            
            
            
            810
            
            
            
            -
            
            
            
            -
            
            
            
            -Other
      corporate obligations
            
            
            703
            
            
            
            408
            
            
            
            197
            
            
            
            55
            
            
            
            43Long-term
      debt*
            
            
            1,350
            
            
            
            8
            
            
            
            3
            
            
            
            1,303
            
            
            
            36Interest
      payment on long-term debt
            
            
            320
            
            
            
            87
            
            
            
            127
            
            
            
            106
            
            
            
            -Insurance*
            
            
            492
            
            
            
            159
            
            
            
            116
            
            
            
            83
            
            
            
            134Retiree
      health*
            
            
            379
            
            
            
            9
            
            
            
            22
            
            
            
            28
            
            
            
            320Closed
      location obligations*
            
            
            73
            
            
            
            17
            
            
            
            23
            
            
            
            12
            
            
            
            21Capital
      lease obligations *(1)
            
            
            41
            
            
            
            2
            
            
            
            4
            
            
            
            3
            
            
            
            32Other
      long-term liabilities reflected on the balance sheet*(3)
            
            
            645
            
            
            
            48
            
            
            
            116
            
            
            
            98
            
            
            
            383Total
            
            $
            40,058
            
            
            $
            4,835
            
            
            $
            4,549
            
            
            $
            5,537
            
            
            $
            25,137


* Recorded on balance sheet.





(1)
            Amounts
      for operating leases and capital leases do not include certain operating
      expenses under the leases such as common area maintenance, insurance and
      real estate taxes.  These expenses for the company's most recent
      fiscal year were $298 million.(2)
            The
      purchase obligations include agreements to purchase goods or services that
      are enforceable and legally binding and that specify all significant
      terms, including open purchase orders.(3)
            Includes
      $38 million ($15 million due in 1-3 years, $14 million due in 3-5 years
      and $9 million due over 5 years) of unrecognized tax benefits recorded
      under FIN No. 48, which we adopted in fiscal year
  2008.








OFF-BALANCE
SHEET ARRANGEMENTS





Letters
of credit are issued to support purchase obligations and commitments (as
reflected on the Contractual Obligations and Commitments table) as follows (In
millions):





Insurance
            $
      265Inventory
      obligations
            62Real
      estate development
            14Other
            8Total
            $
349





We have
no other off-balance sheet arrangements other than those disclosed on the
Contractual Obligations and Commitments table and a credit agreement guaranty on
behalf of SureScripts-RxHub, LLC.  This agreement is described more
fully in Note 6 in the Notes to Consolidated Condensed Financial
Statements.





Both
on-balance sheet and off-balance sheet financing are considered when targeting
debt to equity ratios to balance the interests of equity and debt (including
real estate) investors.  This balance allows us to lower our cost of
capital while maintaining a prudent level of financial risk.








RECENT
ACCOUNTING PRONOUNCEMENTS





In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157, Fair Value
Measurements.  This statement, and the related pronouncements,
defines and provides guidance when applying fair value measurements to
accounting pronouncements that require or permit such measurements.  We
adopted the provisions of SFAS 157, Fair Value Measurementsfor
financial assets and liabilities beginning in the first quarter of fiscal
2009.  FASB Staff Position No. 157-2 deferred the effective date of
nonfinancial asses and liabilities until fiscal year 2010.  We do not
expect to have a material impact in 2010 when we apply the statement to our
nonfinancial assets and liabilities.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51.  The objective of this statement is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary.  The
statement significantly changes the accounting for transactions with minority
interest holders.  This statement, which will be effective for the
first quarter of fiscal 2010, is not expected to have a material impact on our
consolidated financial position or results of operations.





In
December 2007, the FASB issued SFAS No 141(R), Business
Combinations.  This statement establishes principles and
requirements for how the acquirer recognizes and measures identifiable assets
acquired, liabilities assumed and any noncontrolling interest in a business
combination.  In addition the statement provides a revised definition
of a business, shifts from the purchase method to the acquisition method,
expenses acquisition-related transaction costs, recognizes contingent
consideration and contingent assets and liabilities at fair value and
capitalizes acquired in-process research and development. This statement, which
will be effective for the first quarter of fiscal 2010, will be applied
prospectively to business combinations.  In addition, changes in an
acquired entity’s deferred tax assets and uncertain tax positions after the
measurement period will impact income tax expense.





CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





Certain
information in this Form 10-Q, as well as in other public filings, the company
website, press releases and oral statements made by our representatives, is
forward-looking information based on current expectations and plans that involve
risks and uncertainties.  Forward-looking information includes
statements concerning pharmacy sales trends, prescription margins, number and
location of new store openings, outcomes of litigation, the level of capital
expenditures, and demographic trends.  Forward looking information
includes statements with words such as "expects," "estimates," "believes,"
"plans," "anticipates" or similar language.  For such statements, we
claim the protection of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.





Forward-looking
statements involve risks and uncertainties, known or unknown to the company,
that could cause results to differ materially from management expectations as
projected in such forward-looking statements.  These risk and
uncertainties are discussed in item 1A of the company’s annual report on Form
10-K for the period ended August 31, 2008 as well as other documents filed with
the Securities and Exchange Commission.  Unless otherwise required by
applicable securities laws, the company assumes no obligation to update its
forward-looking statements to reflect subsequent events or
circumstances.





Item
3.  QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET
RISK





Management
does not believe that there is any material market risk exposure with respect to
derivative or other financial instruments that would require disclosure under
this item.




Item
4.  CONTROLS AND PROCEDURES





Based on
their evaluation as of November 30, 2008, pursuant to Exchange Act Rule
13a-15(b), the company's management, including its Chief Executive Officer and
Chief Financial Officer, conclude the company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e)) are
effective.





In
connection with the evaluation pursuant to Exchange Act Rule 13a-15(d) of the
company's internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) by the company's management, including its Chief Executive
Officer and Chief Financial Officer, no changes during the quarter ended
November 30, 2008 were identified that have materially affected, or are
reasonably likely to materially affect, the company's internal control over
financial reporting.




PART
      II.  OTHER INFORMATION





Item
1. LEGAL PROCEEDINGS





On April
16, 2008, the Plumbers and Steamfitters Local No. 7 Pension Fund filed a
putative class action suit against the company and its former Chief
Executive Officer and Chief Operating Officer in the United States District
Court for the Northern District of Illinois.  The suit was filed on
behalf of purchasers of company common stock during the period between June 25,
2007, and November 29, 2007.   The complaint which was amended on
October 16, 2008 charges the company and its former Chief Executive Officer
and Chief Operating Officer with violations of Section 10(b) of the Securities
Exchange Act of 1934, claiming that the company misled investors by failing to
disclose declining rates of growth in generic drug sales and a contract dispute
with a pharmacy benefits manager that allegedly had a negative impact on
earnings. The company and the officers named in the suit believe the allegations
are without merit, and intend to defend against them vigorously.  Management
is also of the opinion that although the outcome of this litigation cannot be
forecast with certainty, the final disposition should not have a material
adverse effect on the company's consolidated financial position or results of
operations.







Item
      2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS





(c)
            The
      following table provides information about purchases by the company during
      the quarter ended November 30, 2008 of equity securities that are
      registered by the company pursuant to Section 12 of the Exchange
      Act:





Issuer
      Purchases of Equity SecuritiesPeriod
            
            Total
      Number of Shares Purchased
      (1)
            
            
            Average
      Price Paid per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans orPrograms (2)
            
            
            Approximate
      Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)9/1/2008
      - 9/30/2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            655,123,82110/1/2008
      - 10/31/2008
            
            
            590,000
            
            
            $
            24.837061
            
            
            
            -
            
            
            $
            655,123,82111/1/2008
      -11/30/2008
            
            
            3,590,000
            
            
            $
            23.404739
            
            
            
            -
            
            
            $
            655,123,821Total
            
            
            4,180,000
            
            
            $
            23.606909
            
            
            
            -
            
            
            $
            655,123,821





(1)
            The
      company repurchased an aggregate of 4,180,000 shares of its common stock
      in open-market transactions to satisfy the requirements of the company's
      employee stock purchase and option plans, as well as the company's
      Nonemployee Director Stock Plan.  These
      share repurchases were not made pursuant to a publicly announced
      repurchase plan or program.(2)
            On
      January 10, 2007, the Board of Directors approved a stock repurchase
      program ("2007 repurchase program"), pursuant to which up to $1,000
      million of the company's common stock may be purchased prior to the
      expiration date of the program on January 20, 2011.  This
      program was announced in the company's report on Form 8-K, which was filed
      on January 11, 2007.  The total remaining authorization under
      the repurchase program is $655,123,821 as of November 30,
      2008.








Item
6. EXHIBITS





(a)
            Exhibits





3.1
            Articles
      of Incorporation of Walgreen Co., as amended, filed with the Securities
      and Exchange Commission as Exhibit 3(a) to Walgreen Co.’s Quarterly Report
      on Form 10-Q for the quarter ended February 28, 1999 (File No. 1-00604),
      and incorporated by reference herein.3.2
            Amended
      and Restated By-Laws of Walgreen Co., as amended effective as of September
      1, 2008, filed with the Securities and Exchange Commission on September 5,
      2008 as Exhibit 3.1 to Walgreen Co.’s Current Report on Form 8-K (File No.
      1-00604), and incorporated by reference herein.10.1
            Walgreen
      Co. Management Incentive Plan (as amended and restated effective September
      1, 2008), filed with the Securities and Exchange Commission on October 30,
      2008 as Exhibit 10.3 to Walgreen Co.’s 2008 Annual Report on Form 10-K
      (File No. 1-00604), and incorporated by reference
  herein.10.2
            Form
      of Stock Option Agreement (Grades 12 through 17) (effective September 1,
      2008), filed with the Securities and Exchange Commission on October 30,
      2008 as Exhibit 10.11 to Walgreen Co.’s 2008 Annual Report on Form 10-K
      (File No. 1-00604), and incorporated by reference
  herein.10.3
            Form
      of Stock Option Agreement (Grades 18 and above) (effective September 1,
      2008), filed with the Securities and Exchange Commission on October 30,
      2008 as Exhibit 10.12 to Walgreen Co.’s 2008 Annual Report on Form 10-K
      (File No. 1-00604), and incorporated by reference
  herein.10.4
            Form
      of Restricted Stock Unit Award Agreement (effective September 1, 2008),
      filed with the Securities and Exchange Commission on October 30, 2008 as
      Exhibit 10.13 to Walgreen Co.’s 2008 Annual Report on Form 10-K (File No.
      1-00604), and incorporated by reference herein.10.5
            Form
      of Performance Share Contingent Award Agreement (effective September 1,
      2008), filed with the Securities and Exchange Commission on October 30,
      2008 as Exhibit 10.14 to Walgreen Co.’s 2008 Annual Report on Form 10-K
      (File No. 1-00604), and incorporated by reference
  herein.10.6
            Form
      of Restricted Stock Award Agreement (effective June 2008), filed with the
      Securities and Exchange Commission on October 30, 2008 as Exhibit 10.15 to
      Walgreen Co.’s 2008 Annual Report on Form 10-K (File No. 1-00604), and
      incorporated by reference herein.10.7
            Retirement
      and Non-Competition Agreement effective as of October 10, 2008 between
      Jeffrey A. Rein and Walgreen Co., filed with the Securities and Exchange
      Commission on October 17, 2008 as Exhibit 99.1 to Walgreen Co.’s Current
      Report on Form 8-K (File No. 1-00604), and incorporated by reference
      herein.10.8
            Executive
      Stock Option Plan – Stock Option Agreement made as of October 10, 2008
      between Alan G. McNally and Walgreen Co.10.9
            Long-Term
      Performance Incentive Plan - Restricted Stock Unit Award Agreement
      made as of October 10, 2008 between Alan G. McNally and Walgreen
      Co.12.
            Computation
      of Ratio of Earnings to Fixed Charges31.1
            Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            Certification
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            Certification
      of the Chief Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.32.2
            Certification
      of the Chief Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
  1350.









SIGNATURES











Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

















WALGREEN CO.(Registrant)Dated:
      January 6, 2009
            /s/ W.D. MiquelonW.D.
      MiquelonSenior
      Vice President(Chief
      Financial Officer)Dated:
      January 6, 2009
            /s/ M.M. ScholzM.M.
      ScholzController(Chief
      Accounting Officer)