WALGREEN CO. Brandon Lee Minghui Li Jeremy Smith April 29, 2008

Agenda Company Overview Industry and Economic Analysis Valuation Recommendation Q & A

Company Overview Walgreen company operate retail drug store chains that are engaged in the retail sale of prescription drugs, non-prescription drugs, and general merchandise. In 2008, it opened 536 net new stores for a total of 5997 Walgreens in 48 states and in Puerto Rico. It is the fastest growing retailers in the US, and is the leader in the chain drugstores. Ranked 44 th on the Fortune 500 list of the largest US-based companies. On the list of Fortune’s magazine’s Most Admired Companies in America for the last 14 consecutive years.

Business Drugstores Prescription drugs Nonprescription Drugs General merchandise Take care Health clinics Home infusion Therapy provider Specialty pharmacy

Product class Prescription65%64% 63% Non-prescription10%11% 12% General Merchandise25% Prescription sales continue to become a larger portion of the company’s business.  Aging population  Introduction of lower priced generics  Continued development of innovative drugs

Growth Strategy Opening new stores Walgreen expected to operate more than 7000 stores in 2010

Growth Strategy Acquisitions provide a unique opportunity and strategic fit for Walgreen business. Fiscal 2007:  100% of the outstanding shares of Option Care, Inc. and affiliated companies  Positioned Walgreen as the nation’s largest home infusion therapy provider and the fourth largest specialty pharmacy provider.  100% ownership of Take Care Health System, Inc and LLC, a convenient care clinic operator  Selected assets of Familymeds Group, Inc.  Remaining minority interest of SeniorMed LLC.

Growth Strategy Investment in technology and customer service initiatives Revenue (from 1998 to 2007) $MilFiscal year-end: 8

Fundamental Multiples P/E ratio kept declining stably with the increases in sales. Underlying story remains unchanged. Investors reconsidered the intrinsic value and the risk in the business of Walgreen.

Walgreen Outlook Advantages : Good reputation: Walgreen is a quality name. Convenience of locations: Walgreen stores usually position on high traffic corners, and around large residential locations. High market share translating into scale benefits. Pricing advantage results from scale and high volume. Aging population Risk factors:  Peaking generic drug cycle: It is anticipated that there are no major generic drug introductions in  Store saturation  Competition from CVS/Caremark

Major Financial Activities Stock repurchase program: 2007 repurchased program: up to $1billion of the company’s common stock, expiration date on January 10, repurchased program: completely executed in three years During fiscal 2007, the company purchased $344.9million of shares related to the 2007 repurchased program, million of shares related to the 2004 repurchased program Short-term borrowings: In the fiscal 2007, the company issued commercial paper to support working capital needs. Credit ratings as of August 31, 2008: Rating AgencyLong-term debt ratingsCommercial paper rating Moody'sAa3P-1 S&PA+A-1

Industry Overview Retail (Drugs) Industry  Highly competitive Saturated market Companies looking to enhance retail channels through online and mail order sales  Rx sales $ Bln in 07’ vs. $ Bln in 06’ Main Competitors:  CVS Caremark, Medco, Rite Aid Industry Business Segments:  “Prescription drugs, proprietary drugs, and non- prescription medicines, and which may also carry a number of related lines, such as cosmetics, toiletries, tobacco, and novelty merchandise”

Industry Performance Walgreens, Co. (2007, Oct 26) Retrieved April 26, 2008, from SEC.gov

1 Yr. Stock Performance Accessed: April 25, 2008.

Macroeconomic Overview Credit Crunch  Since late 2007, economic slowdown in response to housing woes  Tougher for companies to access cheap debt Slowed Growth in GDP Decline in Consumer Confidence  Provides insight to market direction a 5 year low (March 2003, 61.4)

 Decline in Consumer Confidence  Provides insight to market direction a 5 year low (March 2003, 61.4) Macroeconomic Overview

Macroeconomic Factors Rapid growth in price of Oil High prices have a negative impact on the economy  Costs to the businesses increase Ui.size=620x300&chartUi.minutes=; Accessed: April 1, 2008.

RCMP Position: Purchased 1000 shares of WAG on October 6 th, 1999 for $25.00/share. On September 20 th, 2006, sold 500 $49.94/share for a realized gain of $12,470. Currently own 500 shares of WAG, trading at $35.48 as of April 28, 2008 for an unrealized gain of $5,240 or 41.92%.

RCMP Portfolio

Correlation:

Operating Leases: Operating leases are not reflected as assets or liabilities on the balance sheet.  Does not reflect the cumulative economic liability for all future lease payments Results:  Reduce the likelihood of a debt covenant violation  Increase ability to obtain future additional loans  Improve financial ratios like debt-to-equity ratio

Lease Obligations: Walgreens owns 19.1% of its stores, leasing the remaining 80.9%. Present value of lease obligations is $ billion  Can be viewed as debt Should consider the risk of this these lease obligations

DCF Assumptions: WACC Calculation:  Weight of Equity: 100%  Weight of Debt: 0%  R f = 4.05%  Beta =.75 (taken from March 2008 Value Line)  k e = 8.55%  Long Term Growth Rate = 4.00%  WACC = 8.55%  DCF Value = $35.19  DCF Range = $31.67 – $38.71

Comparables: Source: Accessed: April 28, 2008http://finance.yahoo.com/q/co?s=WAG

Recommendation: HOLD existing 500 shares of WAG  Consistently beating Wall Street expectations  Continues to open new stores at 8% rate per year