1. NYSE: WAG Junying Shen Xiaosi (Sarah) Song Chi (Tracy) Zhang Xiangyuan (Arthur) Zhong Nov 6, 2012

2. Agenda  Introduction  Industry and Macroeconomic Overview  Company Overview  Relevant Stock Market  Financial Analysis  Financial Projections  Recommendation 2

3. Current Portfolio Position 500 shares bought on Oct 6, 1999 @ $25.00 Current Stock Price: $ 34.89 (Nov 2, 2012) EPS: $ 2.24 Unrealized Gain: 36.32% 3

4. Pharmacies & Drug Stores Industry Overview Revenue: $238.5 billion Annual Growth Rate since 2007: 1.7% Profit: $5.2 billion Major players: ▫Walgreen 30.9% ▫CVS Caremark 27% ▫Rite Aid Corporation 11% Source: WWW.IBISWORLD.COM 4

5. Pharmacies & Drug Stores Industry Structure Mature Life Cycle Stage Low Revenue Volatility Medium Capital Intensity High Concentration Level Medium Regulation Level Medium Barriers to Entry Low Industry Globalization High Competition Level Source: WWW.IBISWORLD.COM 5

6. External Drivers Per capita disposable income Private Health Insurance Coverage Aging Population Medicare, Medicaid & Obamacare Generic Drug Wave 6

7. Per Capita Disposable Income Per Capita Disposable Income determines a person’s ability to purchase goods and services The growth is hindered by the negative Macroeconomic outlook though 7

8. Private Health Insurance Coverage Pros: Private health insurance membership can lower the price of pharmaceutical and hence increase the demand for the industry Cons: Managed care organizations associated with health insurance plans can give lots of pressure on drug price and cut profitability margin 8

9. Aging Population Baby boomers are getting old and this will bring huge opportunities for the industry because senior people has a higher demand for medical services Source: WWW.IBISWORLD.COM 9

10. Medicare, Medicaid & Obamacare Medicare and Medicaid subsidize prescription drug purchases and can spur demand for the industry Obamacare is aimed at increasing the insurance coverage, which may bring opportunities But you’ll never know until tonight…. 10

11. Generic Drug Wave After the expiration of the patent of a medication, a generic version of the drug can be produced and sold Generic drugs have the same effect but are much cheaper compared to brand name drugs Normally generic drugs have a higher gross profit margin for pharmacy retailers, partially because of generic drug producers have smaller bargaining power In the next few years, there will be lots of brand drugs lose patents Source: WWW.IBISWORLD.COM 11

12. Threats Pharmacy Benefit Managers  Third party administrator of prescription drug programs, primarily responsible for processing and paying prescription drug claims Diversified Supermarkets 12

13. Pharmacy Benefit Managers PBMs are the primary contact of the pharmaceutical supply chain to many patients PBMs’ major tools: ▫Pharmacy networks: PBMs build networks of retail pharmacies to provide customers convenient access to prescriptions at discounted rates ▫Mail Service pharmacies: PBMs provide home-delivered prescriptions to consumers PBMs aggregate the buying clout of millions of enrollees through their client health plans to obtain massive bargaining power over pharmacy retailers PBMs are encouraging consumers to use their mail service instead of going to pharmacy retailers and also pressing the pharmacy retailers to charge a lower price for the drugs 13

14. Major players: ▫Medco Health Solutions 32.3% ▫CVS Caremark 27.3% ▫Express Scripts Inc. 21.6% ▫UnitedHealth Group Inc. 9.8% Consolidation ▫Express Scripts acquired Medco Health Solutions with $29.1 billion in 2012 ▫SXC Health Solutions bought Catalyst Health Solutions with &4.14 billion in 2012 Pharmacy Benefit Managers 14

15. Diversified Supermarkets Big retailers like Wal-Mart and King Soopers are stepping into the pharmacy supply chain and we’ve already seen pharmacy shops in many supermarkets 15

16. Walgreen Co. (NYSE: WAG) Fiscal year ended: Aug. 31, 2012 Incorporated: 1901 in Illinois, US, retail drug store chain: Prescription, non-prescription drugs and general merchandise Net sales: $71.6 billion Net earnings: $2.1 billion Employees: 240,000 Prescription sales: 63.2% (2012) vs. 64.7% (2011) Source: 2012 Walgreens Annual Report Revenue in Millions 16

17. Number of stores and locations Store Growth Fiscal Year201220112010200920082007 New Locations212261388602608501 Acquisitions543628289423120 Closings911331201299485 Net Openings175164550562937536 Locations838582108046749669345997 Sales Area*870498561983719787827258566386 # of Locations Location Type2012201120102009 Drugstores7930776175626997 Worksite Facilities366355367377 Infusion and Respiratory Services Facilities 7683101105 Specialty Pharmacies1191415 Mail Service Facilities2222 Total8385821080467496 Source: 2012 Walgreens Annual Report 17 New store growth  expansion into new markets

18. FY 2012 Overview 18

19. June 21, 2011, unable to reach a contract agreement with pharmacy benefit manager Express Scripts, Inc., exited the network as of Jan 1, 2012  sales impact Signed a multiyear agreement with Express Scripts to participate in its broadest retail pharmacy on Jul 19, 2012 On Sep 15, customers began to return  positive effect on WAG’s net sales, earnings and CFs Source: 2012 Walgreens Annual Report 19

20. Launched its innovative Balance Reward loyalty program on Sep 16, 2012 Source: http://investor.walgreens.com/ As of Sept 28, 2012 20

21. Creating Value Through Synergies Strategic partnership with Alliance Boots to create the first global pharmacy-led, health and wellbeing enterprise Closed on first phase of the transaction in August, acquiring a 45% stake. (Full combination in 3 years) Investment : $4.0 Billion in cash and 83.4 million common stock Multinational pharmacy-led health and beauty group Over 3,330 retail locations in Europe Source: 2012 Walgreens Annual Report 21

22. Stock Performance Over 5 years CVS SPX WAG RAD Source: Bloomberg 22

23. Financial Analysis- Liquidity Measure Quick Ratios: WAG vs. Industry 23

24. Financial Analysis- Probability Indicator ROIC: WAG vs. Industry 24

25. Financial Analysis- Debt Ratios Debt to Equity: WAG vs. Industry 25

26. Financial Analysis Among Walgreens’ total stores: ▫20% owned ▫80% leased Caution: $35,356 mm (PV) of operating leases are not reported on balance sheet, which are their contractual obligations and commitments.  Significantly higher obligation level 26

27. Financial Analysis- Operating Performance Inventory Turnover: WAG vs. Industry * Accounting method of booking Alliance Boots acquisition do not allow us to use asset turnover ratio. 27

28. Financial Analysis- Investment Valuation Ratios PE ratio: WAG vs. Industry 28

29. Financial Projection Step one: ▫Invest a total of $6.7 bil. in cash ($4 bil.) and stock (83.4 mil. shares) for 45% equity stake in Alliance Boots Step two (after 2.5 years; done within 6 months) : ▫At share price on Aug 2, 2012 and at exchange rate of $1.55=£1, invest a total of $9.5 bil. in cash($4.9 bil.) and stock(144.3 mil. shares) 29

30. Income Statement ▫45% of Alliance Boots’ operating income added to year 2013 2014 ▫100% of Alliance Boots’ operating income added to year 2015 2016 2017 ▫Interest expense of $3.5 bil. (w/ 2.2% weighted average interest) added to year 2013 2014 ▫Interest expense of $4.9 bil. (w/ 2.2% weighted average interest) added to year 2015 2016 2017 30 Financial Projection on Income Statement

31. Balance Sheet ▫Use the equity method of accounting  book Alliance Boots’ purchased equity into Walgreens asset  2012: 1 st step, $6.7 bil. cash and stock  2015: 2 nd step, $9.5 bil. cash and stock ▫Short Term Borrowing ▫Long Term Borrowing 31 Financial Projection on Balance Sheet

32. 32 Source: http://investor.walgreens.com/ Short Term and Long Term Borrowing

33. Comparable Analysis 33 Price = $39.05

34. Valuation 34 $30.84 $39.05 $33.31

35. Recommendation 35 HOLD