PRESENTED MAY 5, 2009 Alan Lagunov Bobby Schuster Michal Wojcikowski

COMPANY OVERVIEW I.Business Overview II.Macro-economic Outlook III.Industry Analysis IV.SWOT Analysis V.Competitors

BUSINESS OVERVIEW HISTORY Walgreens was founded in 1901, when Charles R. Walgreen bought one of the busiest drugstores, on the south side of Chicago, at which he had been working as a pharmacist In 1927, the company went public and by the end of 1929, there were 397 Walgreen stores in 87 cities; annual sales were $47 million with net earnings of $4 million From the 1920s to the 1950s, Walgreen’s soda fountain was the main attraction for customers, which lined up to buy a product WAG invented in the early 1920s: the milkshake

BUSINESS OVERVIEW HISTORY In the 1950s, Walgreens began to build self-service instead of clerk service stores in the Midwest and became the largest self- service retailer in the country by 1953 In the early 1980s, the company pioneered computerized pharmacies connected by satellite In 1991, Walgreens completed the installation of point-of-sale scanning to speed checkouts In 1992, the company became the first drugstore with a drive- thru pharmacy Walgreens.com is launched in 1999, a comprehensive online pharmacy offering customers a convenient and secure way to take care of my pharmaceutical and healthcare needs online

BUSINESS OVERVIEW PRESENT Walgreen Company is principally a retail drug store chain that sells prescription drugs, non-prescription drugs, and general merchandise Nation’s largest drugstore chain with fiscal 2008 sales of $59 billion and over 237,000 employees 34 th consecutive year of record sales and earnings Walgreens is named to Fortune magazine’s Most Admired Companies in America list for the 15 th consecutive year Ranked 40 th on the Fortune 500 list of the largest U.S.-based companies

BUSINESS OVERVIEW BUSINESS MODEL © Copyright 2008 Walgreen Co.

BUSINESS OVERVIEW STORE MODEL 2009 business model Walgreens locations are always set up as a freestanding locations Must be at the corners of busy, intersecting streets on the prevailing side of the street with the most traffic flow Location allows the store to offer additional conveniences to customers such as a drive-through pharmacy and 24-hour shopping

BUSINESS OVERVIEW PRESENT © Copyright 2008 Walgreen Co.

BUSINESS OVERVIEW BUSINESS LOCATIONS © Copyright 2008 Walgreen Co.

BUSINESS OVERVIEW MANAGEMENT Gregory Wasson- President and CEO On January 26, 2009, was named CEO effective February 1, 2009 Internal hire, with the company since 1980 Alan McNally- Chairman Replaced Jeff Rein as Chairman and Acting CEO after his retirement on October 10, 2008 Served on Walgreens board of directors since 1999 Jeff Rein- Former Chairman and CEO Served as CEO from 2006 until October 10, 2008 Speculation that his retirement was forced by the board of directors Conflict over future growth of the company

BUSINESS OVERVIEW BUSINESS STRATEGY © Copyright 2008 Walgreen Co.

BUSINESS OVERVIEW BUSINESS STRATEGY © Copyright 2008 Walgreen Co.

BUSINESS OVERVIEW BUSINESS STRATEGY © Copyright 2008 Walgreen Co.

BUSINESS OVERVIEW BUSINESS STRATEGY

BUSINESS OVERVIEW ACQUISITIONS

BUSINESS OVERVIEW ACQUISITIONS

BUSINESS OVERVIEW ACQUISITIONS Acquire 32 stores from Drug Fair Group, Inc., pharmacy and healthcare retailer. Acquire prescription files from 11 other Drug Fair stores which have closed. Patients previously served by these 11 pharmacies now have access to their prescription histories at any of the Walgreens locations nationwide. Drug Fair Group filed for financial restructuring under Chapter 11. The acquisition is subject to approval from a bankruptcy court. Acquire 12 stores out of which 7 stores in downtown San Francisco and 5 stores in eastern Idaho from Rite Aid Corp., a retail drugstores operator. Acquired specialty pharmacy business in Pittsburgh from McKesson Corporation, a healthcare services company. Acquired IVPCARE, Inc., a specialty pharmacy focused on reproductive health based in Frisco, Texas, with operations in Torrance, California, Wilmington, Mass. and St. Louis. Acquired all 76 Happy Harry's stores in Delaware, Pennsylvania, Maryland and New Jersey, and the corporate office and distribution center. (keep name, run by Fank Grilli VP store ops.)

MACRO-ECONOMIC OUTLOOK Consumer Confidence Index declined significantly since early 2007 Unemployment rate has increased and might reach 10% by the end of 2009 Continued pricing pressure for retailers

INDUSTRY ANALYSIS Economic slowdown –Responding to changing consumer –Protecting balance sheet –Focus on core operations and cost cutting Health care reform –Affordability and accessibility –Positioned to respond –New Administration

SWOT ANALYSIS SWOT Over 1 yr. Wal-Mart and Walgreens have had almost identical overall returns. Walgreens outperformed CVS by over 9%. Omnicare best performer due to min. exposure to retail consumer

SWOT ANALYSIS SWOT Strengths 2 nd leading market position In-depth product & service offerings Strong CRM initiative through Prescription Savings Club Weaknesses Product recall High dependence over third party sales

SWOT ANALYSIS SWOT Opportunities Growing specialty pharmacy business in the US Increase demand of private label products/remerchandising –Consumer Centric Retailing strategy (execution risk) Increase in aging population in the US Increase online sales POWER program adding savings (central fill/work load balancing pharmacy efficiency initiative) Threats Reduced reimbursement by third party organization –Deficit Reduction Act 2005 reduces Medicaid reimbursements to generic drugs Intense competition impact profitability (pricing pressure) –Other drug stores, mail-order, grocery/convenience stores, mass merchants, dollar stores, insurance companies, managed care providers => continue to enter WAG market

SWOT ANALYSIS SWOT Threats cont. Threat to front-end sales Subject to governmental regulations & procedures –Fed/State/Local regulators – Medicare & Medicaid – HIPAA (to name a few) –Healthcare reform is long term concern Shortage of licensed pharmacists – pressure on compensation packages. & limits growth Growth constrained – locating suitable site locations at acceptable pricing or expiration of current leases Economic conditions threatening consumer spending Decrease in introduction of new brand name & generic prescription drugs Credit rating affecting cost of capital and store lease terms

COMPETITORS COMP DESCRIPTIONS CVS Only fully integrated pharmacy health care company in the United States. One of the country’s largest pharmacy benefit managers (PBMs), provide plan sponsors and participants access to a network of approximately 60,000 pharmacies including over 6,900 CVS/pharmacy stores. CVS Caremark is a market leader in mail order pharmacy, retail pharmacy, specialty pharmacy, and retail clinics, and our clinical expertise includes one of the industry’s most comprehensive disease management programs. Rite Aid Corp. 3 rd largest drug store chain nationwide and largest on the east coast with more than 4,900 stores in 31 states and the District of Columbia, with a strong presence on both the East and West coasts, and 109,000 associates. Walmart Discount retailer with over 7,800 Wal-Mart stores and Sam’s Club locations in 16 markets worldwide employ more than 2 million associates, and serve more than 100 million customers per year. Omnicare Leading provider of pharmaceutical care for the elderly. Serves residents in long-term care facilities, chronic care and other settings comprising more than 1.4 million beds in 47 states, the District of Columbia and Canada. Largest U.S. provider of professional pharmacy, related consulting and data management services for skilled nursing, assisted living and other institutional healthcare provider

COMPETITORS COMPS ANALYSIS

COMPETITORS COMPS ANALYSIS WALGREENS OMNICARE CVS RITE AID WAL MART

VALUATION I.Assumptions II.WACC III.DCF Valuation

ASSUMPTIONS VALUATION

WACC VALUATION

DCF VALUATION VALUATION

WACC – CONTRACTUAL OBLIGATIONS VALUATION

DCF VALUATION – CONTRACTUAL OBLIGATIONS VALUATION

STOCK PERFORMANCE VALUATION

REAL CLIENT MANAGED PORTFOLIO TRANSACTION HISTORY Walgreens Ameren.1247 American Eagle.1362 Diamond Offshore First Industrial.1971 Jack Henry.1491 Kimberly Clark.2854 McDonalds.2364 Stericycle.0848 MEMC Electronics October 6th, 1999, entered position 1000 shares at $25.00 per share September 20th, 2006 Sold 500 shares at $49.94 per share Realized gain of $12,470 Current Position Own 500 shares RCMP CORRELATION

REAL CLIENT MANAGED PORTFOLIO RECOMMENDATION Hold current position 500 shares at $31.52 (as of May 4, 2009) DCF and comps valuation implies shares are fairly valued Management’s focus on core strategies allows for internal improvement Slower organic store growth will free up cash flow As comparable store sales pick up from 2009 recessionary levels, we expect net sales growth to trend back near historical marks