Walgreens vs. CVS financial analysis: (2018 & 2017 online)

1. Calculate the following ratios and filled in the worksheet for ratios. You must show your work.

LIQUIDITY RATIOS:

A. Net working capital for Walgreens Net working capital for CVS

Analysis: What do the results of this calculation mean in the context of Walgreens? In the context of CVS? Compare the two - why are they different? Which is better or worse?

Must be at least four sentences for the above analysis.

B. Current ratio for Walgreens Current ratio for CVS

What does the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

C. Quick ratio for Walgreens Quick ratio for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

PROFITABILITY CALCULATIONS:

D. Gross profit $ and gross profit % for Walgreens Gross profit $ and gross profit % for CVS

What do the results of this calculation mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

SOLVENCY RATIOS

E. Debt ratio for Walgreens Debt ratio for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

ASSET MANAGEMENT RATIOS

F. Accounts receivable turnover ratio for Walgreens Accounts receivable turnover ratio for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

G. Inventory turnover ratio for Walgreens Inventory turnover ratio for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

MARKET ANALYSIS RATIOS

H. Earnings per share for Walgreens Earnings per share for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

I. Return on Equity for Walgreens Return on Equity for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

J. Market Cap for Walgreens Market Cap for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

I. Free Cash Flow for Walgreens Free Cash Flow for CVS

What do the results of this ratio mean in the context of Walgreens? How about CVS? Compare the two - why are they different (be as specific as possible).

Ratios:

		Walgreens 8/31/18	CVS 12/31/18	EXPLAIN
A	Net Working Capital
B	Current ratio
C	Quick ratio
D	Gross Profit ($ and %)
E	Debt ratio
F	Accounts Receivable Turnover
G	Inventory Turnover
H	EPS
I	ROE
J	Market cap
K	Free Cash Flow

2. Using Walgreens financials, calculate a horizontal analysis ($ and %) on the income statement including gross profit (you will have to calculate). I recommend using EXCEL spreadsheet to do this question.

2a. Using Walgreens financials, then do the vertical analysis for the balance sheet for 2018 and 2017). I recommend using EXCEL spreadsheet to do this question.

2b. What do you notice about the change from year to year on income statement and the change in the balances compared to the prior year? Be as specific as possible.

3. Which company would you invest, Walgreens or CVS, based on the financial statement analysis? Give me at least two sentences on how much and why.

Consolidated Statements of Operations For the Years Ended December 31, 2018 2017 2016 $ S 183,910 8,184 1,825 180,063 3,558 173,377 3,069 1.080 20 177,546 660 21 194,579 184,786 146,533 2.179 Int. millions, except per share amounts Revenues: Products Premiums Services Net investment income Total revenues Operating costs: Cost of products sold Benefit costs Goodwill impairments Operating expenses Total operating costs Operating income Interest expense Loss on early extinguishment of debt Other expense (income) Income before income tax provision Income tax provision Income (loss) from continuing operations Loss from discontinued operations, net of tax Net income (loss) Net (income) loss attributable to noncontrolling interests Net income (loss) attributable to CVS Health 156,447 6,594 6,149 21,368 190,558 4,021 2,619 153,448 2,810 181 18,809 175,248 9,538 1,062 18,448 167,160 10,386 1,078 643 1,406 208 8.268 1,637 2002 8,637 3,317 5,320 6,631 6.623 5.319 (594) S 6,622 4.93 (0.57) - (0.57) 1.044 S $ S 6.48 (0.01) 6.47 1,020 $ S S 4.93 1,073 Basic earnings (loss) per share: Income (loss) from continuing operations attributable to CVS Health Loss from discontinued operations attributable to CVS Health Net income (loss) attributable to CVS Health Weighted average basic shares outstanding Diluted camnings (loss) per share Income (loss) from continuing operations attributable to CVS Health Loss from discontinued operations attributable to CVS Health Net income (loss) attributable to CVS Health Weighted average diluted shares outstanding Dividends declared per share 4.91 S (0.57) S - S (0.57) S 1,044 2.00 $ $ 6.45 (0.01) 6.44 1,024 2.00 S S $ 4.90 1.079 1.70 $ $ See accompanying notes to consolidated financial statements. Page 38 Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2018 2017 2016 (596) S 6,623 5 5 ,319 38 In millions Net income (loss) Other comprehensive income (loss), net of tax: Net unrealized investment gains Foreign currency translation adjustments Net cash flow hedges Pension and other postretirement benefits Other comprehensive income Comprehensive income (loss) Comprehensive (income) loss attributable to noncontrolling interests Comprehensive income (loss) attributable to CVS Health (10) 152 97 (29) 330 (124) 274 (322) 2 (320) S 140 6,763 (1) 6,762S 5.372 (2) 5,370 $ See accompanying notes to consolidated financial statements. Page 39 Consolidated Balance Sheets At December 31 2017 40595 15296 405 I will persone s Assets Cash and cash juivalents Investments Accounts receivable net Inventories Other cum Total currents Long-term investments Property and equipment, net Good Intangibles , niet Separate accounts assets O assets Total assets 1761 16.450 401 45.5 150732 11 10 7867 36,534 112 10,292 ISI 13.630 1.417 5.06 196,456 $ 3925 5 10155 5.210 299 10,711 1937 125 Accounts payable Pharmacy claims and discounts payable Health care costs payable Policyholders' funds Accrued expenses Other insurance liabilities Short-term debt Current portion of long-term debt Total current liabilities Long-term debt Deferred income taxes Separate con t es Other long-term insurance liabilities Other long-term liabilities Total liabilities Commitments and continencies (Note 16) 71. 4 7677 34 10 22.181 2996 137911 374796 Shareholders' equity CVS Health shareholders equity Preferred stock, por value 0 01:01 shares author o n der outstanding Common stock, por value 5001: 3.200 shares autorid: 1.720 shares issued and 1.295 shares outstanding at December 31, 2018 and 1.712 shares issued and 1.014 shares outstanding at December 31, 2017 and capital surplus Treasuryck to 45 shares December 31, 2018 and shares December 31, 2017 Retained earnings Accumulated other emprehensive income (less) Total CVS Health shareholders' equity Noncontrolling interests Total shareholders' equity Total liabilities and shareholders' equity 40,911 (165) 37691 318 37645 95.131 196456 See accompanying not to consolidated financial statements Page 20 Consolidated Statements of Cash Flows For the Years Ended December 31, 2018 2016 S S In millions Cash flows from operating activities: Cash receipts from customers Cash paid for inventory and prescriptions dispensed by retail network pharmacies Insurance benefits paid Cash paid to other suppliers and employees Interest and investment income received Interest paid Income taxes paid Net cash provided by operating activities 186,519 (148,821) (7,057) (17,234) 644 (2,803) (2383) 8,865 176,594 (146,469) (2.810) (15,348) 21 (1.072) (2009) 172,310 (140,312) (2,199) (15,478) (1.140) (3.060) 8.007 10,141 91 817 (692) (2,037) (80) Cash flows from investing activities: Proceeds from sales and maturities of investments Purchases of investments Purchases of property and equipment Proceeds from sale-leaseback transactions Acquisitions (net of cash acquired) Proceeds from sale of subsidiary and other assets Other Net cash used in investing activities (137) (1.918) 265 (1,181) (2,224) 230 (524) (42,226) 832 21 (43,285) 33 37 (2.470) (2,877) (598) (556) 44,343 (5,522) 1,874 3,455 (5.943) (39) (26) 446 Cash flows from financing activities: Net repayments of short-term debt Proceeds from issuance of long-term debt Repayments of long-term debt Purchase of noncontrolling interest in subsidiary Payment of contingent consideration Derivative settlements Repurchase of common stock Dividends paid Proceeds from exercise of stock options Payments for taxes related to net share settlement of equity awards Other Net cash provided by (used in) financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at the beginning of the period Cash, cash equivalents and restricted cash at the end of the period (4,461) (1.840) (2,038) 242 (97) (4,361) (2,049) 329 (71) 296 (72) (1) (5) 36,819 (6,751) (6,761) 912 2,395 1.900 4,295 (1.620) 3.520 1,900 2.608 $ $ $ 3,520 Page 41 For the Years Ended December 31, 2018 2017 2016 (596) S 6,623 S 5,319 2,475 2,718 6,149 In millions Reconciliation of net income (loss) to net cash provided by operating activities: Net income (loss) Adjustments required to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Goodwill impairments Losses on settlements of defined benefit pension plans Stock-based compensation Loss on early extinguishment of debt Deferred income taxes Other noncash items Change in operating assets and liabilities, net of effects from acquisitions: Accounts receivable, net Inventories 2,479 181 187 234 280 222 643 87 (1,334) 53 339 135 (941) (514) (338) 1,710 Other assets (1.139) (1,153) (3) 2,489 (471) 165 8,865 Accounts payable and pharmacy claims and discounts payable Health care costs payable and other insurance liabilities Other liabilities Net cash provided by operating activities (243) (742) (8) 2.189 (19) 152 10,141 (333) 8,007 $ S See accompanying notes to consolidated financial statements. Page 42 Consolidated Statements of Shareholders' Equity Number of shares outstanding Attributable to CVS Health Common Common Shares 1,699 Treasury Shares ) (598) In millions Accumulated Other Comprehensive Income (Loss) (35) Stock and Capital Treasury Retained Samples Stock Earnings $ 30,965 $ (28.917) S 35.506 S 5,317 Total CVS Health Non Shareholders Controlling Equity Interests 37.1965 7 5.317 Total Equity 37,203 5,318 Balance at December 31, 2015 Not income Other comprehensive income (Note 53 525 525 145 (4.566) Stock option activity, stock awards, related tax benefits and other Purchase of treasury shares, met of ESPP issuances Common stock dividends Other decreases in noncontrolling interests Balance at December 31, 2016 (4421) (1840) (1.840) (1.840) 31,635 (33.483) 36834 38.983 6,622 16.30 6,622 6,627 Net income Other comprehensive income (Note 140 140 461 461 (54) - (4313) - (4,313) (2,049) - (2,049) (2,049) Stock option activity, stock awards and other Purchase of treasury shares, met of ESPP issuances Common stock dividends Other decreases in noncontrolling interests Balance at December 31, 2017 Adoption of new accounting standards (Note 1) Net loss Other comprehensive income (Note 32,096 (37,796) 43,556 37,691 37,695 (13) (594) (13) (596) 13) 274 Common shares issued to acquire 22,484 Stock option activity, stock awards Purchase of treasury shares, met of ESPP issuances Common stock dividends Other decreases in noncontrolling (2,045) (2,045) (2,045) (13) Acquisition of noncontrolling interests Balance at December 31, 2018 329 329 1,720 (425) $ 45,440 S (28,228) S 40,911 S 102 $ 58,225 318 $ 58,543 (1) Treasury shares include 1 million shares held in trust for cach of the years ended December 31, 2018, 2017 and 2016. Treasury stock includes $29 million related to shares held in trust for the year ended December 31, 2018 and 531 million related to shares held in trust for each of the years ended December 31, 2017 and 2016. See Note 1 Significant Accounting Policies" for additional information (2) Common stock and capital surplus includes the par value of common stock of $17 million as of December 31, 2018 2017 and 2016 (3) Net income attributable to noncontrolling interests for the year ended December 31, 2016 excludes S1 million attributable to a redeemable no controlling interest. See Note 1 Significant Accounting Policies for additional information See accompanying notes to consolidated financial statements. Page 43 Item 8. Financial statements and supplementary data WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Al August 31, 2018 and 2017 (in millions, except shares and per share amounts) 2018 S 785 6.373 9,565 923 17.846 3.301 6.528 8.899 1.025 19.753 Assets Current assets: Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Non-current assets: Property, plant and equipment, net Goodwill Intangible assets, net Equity method investments (see note 5) Other non-current assets Total non-current assets Total assets 13.911 16,914 11.783 6,610 1.060 S0278 68,124 13.642 15,632 10,156 6,320 506 46156 $ 66,009 S 1.966 13.566 5.862 273 21.667 251 12.494 5,473 329 18.547 12,684 2.281 12.431 1.815 5.522 19.768 4223 19.188 Liabilities and equity Current liabilities: Short-term debt Trade accounts payable (see note 17) Accrued expenses and other liabilities Income taxes Total current liabilities Non-current liabilities: Long-term debt Deferred income taxes Other non-current liabilities Total non-current liabilities Commitments and contingencies (see note 10) Equity: Preferred stock S.1 par value;authorized 32 million shares, none issued Common stock S.01 par value: authorized 3.2 billion shares, issued 1.172.513.618 at August 31, 2018 and 2017 Paid-in capital Retained camnings Accumulated other comprehensive loss Treasury stock, at cost: 220,380.200 shares at August 31, 2018 and 148,664,548 at August 31, 2017 Total Walgreens Boots Alliance, Inc. shareholders' equity Noncontrolling interests Total equity Total liabilities and equity 10,493 33.351 (3.002) (15.047) 26,007 10,339 30,137 (3.051) (9.971) 27.466 62 SOS 26.689 28.274 66,009 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY For the years ended August 31, 2018, 2017 and 2016 (in millions, except shares) Equity attributable to Walgreens Boots Alliance, Inc. Employee Accumulated Common Treasury stock other stock stock Paid in loan comprehensive amount amount capital receivable income (loss) 1 2 S (3.977) S 9,953 S (2) S (214) S Common stock shares 1.089.910.344 S Total equity August 31, 2015 Retained earnings 25.089 S 4,173 Noncontrolling i nterests 4 39 18 S 4.191 (2.778) (56) (2.834) (1.578) (1.152) (13,815,558) (1.152) Net earnings Other comprehensive income (loss), net of tax Dividends declared Treasury stock purchases Employee stock purchase and option plans Stock-based compensation Employee stock loan receivable August 31, 2016 6,891,805 238 115 1.082.986.591 S 12 S (4.934) S 10,111 S (I) S (2.992) S 2015 27,684 S 4,078 30,281 4,101 (59) (95) Net camings Other comprehensive income (loss), net of tax Dividends declared and distributions Treasury stock purchases Employee stock purchase and option plans (64,589,677) (1.723) (5.220) (5,220) 5.452.156 183 218 91 103 518 808 1,023,849,070 S 2 S (9.971) S 10,339 S - S (3.051) S $ 30,137 S 5.024 621 28.274 5.031 Stock-based compensation Noncontrolling interests acquired and arising on business combinations August 31, 2017 Net earnings Other comprehensive income (loss), net of tax Dividends declared and distributions Treasury stock purchases Employee stock purchase and option plans Stock-based compensation Noncontrolling interests contribution and other August 31, 2018 (1.610) (1.748) (5.228) (76,069,557) (5,228) 1111 4,353,905 152 174 130 952,133.418 S 1 2 S (15,047) S 10,493 S - $ (3,002) S 33.551 S 682 S 26,689 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. - 59. WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the years ended August 31, 2018, 2017 and 2016 (in millions, except per share amounts) 2016 $ $ Sales Cost of sales Gross profit 2018 131,537 100,745 30,792 2017 118,214 89,052 29,162 117,351 87,477 29.874 23,740 23,910 Selling, general and administrative expenses Equity earnings in AmerisourceBergen Operating income 24,569 191 6,414 5,557 6,001 (261) Other income (expense) Earnings before interest and income tax provision 6,591 5.546 5,740 693 5.975 4,853 596 5.144 760 Interest expense, net Earnings before income tax provision Income tax provision Post tax earnings from other equity method investments Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Walgreens Boots Alliance, Inc. 4.101 5,024 S 4,078 $ 4,173 Net earnings per common share: Basic Diluted 5.07 5.05 $ $ 3.80 3.78 $ $ 3.85 3.82 Dividends declared per share 1.640 $ 1.525 S Weighted average common shares outstanding: Basic Diluted 991.0 995.0 1,073.5 1,078.5 1,083.1 1,091.1 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. - 60 - WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended August 31, 2018, 2017 and 2016 (in millions) 2018 2017 2016 Comprehensive income: Net earnings $ 5,031 $ 4,101 $ 4,191 240 (241) Other comprehensive income (loss), net of tax: Pension/postretirement obligations Unrealized gain on cash flow hedges Unrecognized (loss) on available-for-sale investments Share of other comprehensive income (loss) of equity method investments Currency translation adjustments Total other comprehensive income (loss) Total comprehensive income (257) (1) 2,338) (2.834) 4,006 1,357 Comprehensive income (loss) attributable to noncontrolling interests Comprehensive income attributable to Walgreens Boots Alliance, Inc. s 5,073s 4,019 (39) 1,396 073 4,019 S 1,96 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. WALGREENS BOOTS ALLIANCE. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended August 31, 2018, 2017 and 2016 (in millions) 2018 2017 2016 5,031 $ 4,101 $ 4,191 1,770 1,654 1,718 516 Cash flows from operating activities: Net camin Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Change in fair value of warrants and related amortization Gain on previously held equity interest Deferred income taxes Stock compensation expense Equity earnings from cquity method investments Other Changes in operating assets and liabilities: Accounts receivable, net Inventories Other current assets Trade accounts payable Accrued expenses and other liabilities Income taxes Other non-current assets and liabilities Net cash provided by operating activities (337) (322) 130 (344) 296 115 (434) 91 (143) 364 (81) 148 (391) (153) US (644) 331 1,572 1.6,90 (128) (22) 1.323 281 694 (275) 8.265 313 202 7.251 7.847 (1.367) (135) (1.325) Cash flows from investing activities Additions to property, plant and equipment Proceeds from sale leaseback transactions Proceeds from sale of businesses Proceeds from sale of other assets Business, investment and asset acquisitions, net of cash acquired Investment in Amerisource Bergen Other Net cash used for investing activities 655 155 (126) (2.360) (5.501) (3,517) Cash flows from financing activities Net change in short-term debt with maturities of 3 months or less Proceeds from debt Payments of debt Stock purchases Proceeds related to employee stock plans Cash dividends paid Other Net cash (used for provided by financing activities 586 5.900 (4.890) (5.228) (6.196) (5.220 174 217 5.991 (291) (1.152) 235 (1,563 (143) 2,606 (1.739) (98) (5.295) (1.723) (45) (12934) Effect of exchange rate changes on cash and cash equivalents Changes in cash and cash equivalents: Net (decrease) increase in cash and cash equivalents (2.516) (6.506) Cash and cash equivalents at beginning of period 3.301 9,807 Cash and cash equivalents at end of period 785 3.301 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements 6,807 3,000 9,807 $ Consolidated Statements of Operations For the Years Ended December 31, 2018 2017 2016 $ S 183,910 8,184 1,825 180,063 3,558 173,377 3,069 1.080 20 177,546 660 21 194,579 184,786 146,533 2.179 Int. millions, except per share amounts Revenues: Products Premiums Services Net investment income Total revenues Operating costs: Cost of products sold Benefit costs Goodwill impairments Operating expenses Total operating costs Operating income Interest expense Loss on early extinguishment of debt Other expense (income) Income before income tax provision Income tax provision Income (loss) from continuing operations Loss from discontinued operations, net of tax Net income (loss) Net (income) loss attributable to noncontrolling interests Net income (loss) attributable to CVS Health 156,447 6,594 6,149 21,368 190,558 4,021 2,619 153,448 2,810 181 18,809 175,248 9,538 1,062 18,448 167,160 10,386 1,078 643 1,406 208 8.268 1,637 2002 8,637 3,317 5,320 6,631 6.623 5.319 (594) S 6,622 4.93 (0.57) - (0.57) 1.044 S $ S 6.48 (0.01) 6.47 1,020 $ S S 4.93 1,073 Basic earnings (loss) per share: Income (loss) from continuing operations attributable to CVS Health Loss from discontinued operations attributable to CVS Health Net income (loss) attributable to CVS Health Weighted average basic shares outstanding Diluted camnings (loss) per share Income (loss) from continuing operations attributable to CVS Health Loss from discontinued operations attributable to CVS Health Net income (loss) attributable to CVS Health Weighted average diluted shares outstanding Dividends declared per share 4.91 S (0.57) S - S (0.57) S 1,044 2.00 $ $ 6.45 (0.01) 6.44 1,024 2.00 S S $ 4.90 1.079 1.70 $ $ See accompanying notes to consolidated financial statements. Page 38 Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2018 2017 2016 (596) S 6,623 5 5 ,319 38 In millions Net income (loss) Other comprehensive income (loss), net of tax: Net unrealized investment gains Foreign currency translation adjustments Net cash flow hedges Pension and other postretirement benefits Other comprehensive income Comprehensive income (loss) Comprehensive (income) loss attributable to noncontrolling interests Comprehensive income (loss) attributable to CVS Health (10) 152 97 (29) 330 (124) 274 (322) 2 (320) S 140 6,763 (1) 6,762S 5.372 (2) 5,370 $ See accompanying notes to consolidated financial statements. Page 39 Consolidated Balance Sheets At December 31 2017 40595 15296 405 I will persone s Assets Cash and cash juivalents Investments Accounts receivable net Inventories Other cum Total currents Long-term investments Property and equipment, net Good Intangibles , niet Separate accounts assets O assets Total assets 1761 16.450 401 45.5 150732 11 10 7867 36,534 112 10,292 ISI 13.630 1.417 5.06 196,456 $ 3925 5 10155 5.210 299 10,711 1937 125 Accounts payable Pharmacy claims and discounts payable Health care costs payable Policyholders' funds Accrued expenses Other insurance liabilities Short-term debt Current portion of long-term debt Total current liabilities Long-term debt Deferred income taxes Separate con t es Other long-term insurance liabilities Other long-term liabilities Total liabilities Commitments and continencies (Note 16) 71. 4 7677 34 10 22.181 2996 137911 374796 Shareholders' equity CVS Health shareholders equity Preferred stock, por value 0 01:01 shares author o n der outstanding Common stock, por value 5001: 3.200 shares autorid: 1.720 shares issued and 1.295 shares outstanding at December 31, 2018 and 1.712 shares issued and 1.014 shares outstanding at December 31, 2017 and capital surplus Treasuryck to 45 shares December 31, 2018 and shares December 31, 2017 Retained earnings Accumulated other emprehensive income (less) Total CVS Health shareholders' equity Noncontrolling interests Total shareholders' equity Total liabilities and shareholders' equity 40,911 (165) 37691 318 37645 95.131 196456 See accompanying not to consolidated financial statements Page 20 Consolidated Statements of Cash Flows For the Years Ended December 31, 2018 2016 S S In millions Cash flows from operating activities: Cash receipts from customers Cash paid for inventory and prescriptions dispensed by retail network pharmacies Insurance benefits paid Cash paid to other suppliers and employees Interest and investment income received Interest paid Income taxes paid Net cash provided by operating activities 186,519 (148,821) (7,057) (17,234) 644 (2,803) (2383) 8,865 176,594 (146,469) (2.810) (15,348) 21 (1.072) (2009) 172,310 (140,312) (2,199) (15,478) (1.140) (3.060) 8.007 10,141 91 817 (692) (2,037) (80) Cash flows from investing activities: Proceeds from sales and maturities of investments Purchases of investments Purchases of property and equipment Proceeds from sale-leaseback transactions Acquisitions (net of cash acquired) Proceeds from sale of subsidiary and other assets Other Net cash used in investing activities (137) (1.918) 265 (1,181) (2,224) 230 (524) (42,226) 832 21 (43,285) 33 37 (2.470) (2,877) (598) (556) 44,343 (5,522) 1,874 3,455 (5.943) (39) (26) 446 Cash flows from financing activities: Net repayments of short-term debt Proceeds from issuance of long-term debt Repayments of long-term debt Purchase of noncontrolling interest in subsidiary Payment of contingent consideration Derivative settlements Repurchase of common stock Dividends paid Proceeds from exercise of stock options Payments for taxes related to net share settlement of equity awards Other Net cash provided by (used in) financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at the beginning of the period Cash, cash equivalents and restricted cash at the end of the period (4,461) (1.840) (2,038) 242 (97) (4,361) (2,049) 329 (71) 296 (72) (1) (5) 36,819 (6,751) (6,761) 912 2,395 1.900 4,295 (1.620) 3.520 1,900 2.608 $ $ $ 3,520 Page 41 For the Years Ended December 31, 2018 2017 2016 (596) S 6,623 S 5,319 2,475 2,718 6,149 In millions Reconciliation of net income (loss) to net cash provided by operating activities: Net income (loss) Adjustments required to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Goodwill impairments Losses on settlements of defined benefit pension plans Stock-based compensation Loss on early extinguishment of debt Deferred income taxes Other noncash items Change in operating assets and liabilities, net of effects from acquisitions: Accounts receivable, net Inventories 2,479 181 187 234 280 222 643 87 (1,334) 53 339 135 (941) (514) (338) 1,710 Other assets (1.139) (1,153) (3) 2,489 (471) 165 8,865 Accounts payable and pharmacy claims and discounts payable Health care costs payable and other insurance liabilities Other liabilities Net cash provided by operating activities (243) (742) (8) 2.189 (19) 152 10,141 (333) 8,007 $ S See accompanying notes to consolidated financial statements. Page 42 Consolidated Statements of Shareholders' Equity Number of shares outstanding Attributable to CVS Health Common Common Shares 1,699 Treasury Shares ) (598) In millions Accumulated Other Comprehensive Income (Loss) (35) Stock and Capital Treasury Retained Samples Stock Earnings $ 30,965 $ (28.917) S 35.506 S 5,317 Total CVS Health Non Shareholders Controlling Equity Interests 37.1965 7 5.317 Total Equity 37,203 5,318 Balance at December 31, 2015 Not income Other comprehensive income (Note 53 525 525 145 (4.566) Stock option activity, stock awards, related tax benefits and other Purchase of treasury shares, met of ESPP issuances Common stock dividends Other decreases in noncontrolling interests Balance at December 31, 2016 (4421) (1840) (1.840) (1.840) 31,635 (33.483) 36834 38.983 6,622 16.30 6,622 6,627 Net income Other comprehensive income (Note 140 140 461 461 (54) - (4313) - (4,313) (2,049) - (2,049) (2,049) Stock option activity, stock awards and other Purchase of treasury shares, met of ESPP issuances Common stock dividends Other decreases in noncontrolling interests Balance at December 31, 2017 Adoption of new accounting standards (Note 1) Net loss Other comprehensive income (Note 32,096 (37,796) 43,556 37,691 37,695 (13) (594) (13) (596) 13) 274 Common shares issued to acquire 22,484 Stock option activity, stock awards Purchase of treasury shares, met of ESPP issuances Common stock dividends Other decreases in noncontrolling (2,045) (2,045) (2,045) (13) Acquisition of noncontrolling interests Balance at December 31, 2018 329 329 1,720 (425) $ 45,440 S (28,228) S 40,911 S 102 $ 58,225 318 $ 58,543 (1) Treasury shares include 1 million shares held in trust for cach of the years ended December 31, 2018, 2017 and 2016. Treasury stock includes $29 million related to shares held in trust for the year ended December 31, 2018 and 531 million related to shares held in trust for each of the years ended December 31, 2017 and 2016. See Note 1 Significant Accounting Policies" for additional information (2) Common stock and capital surplus includes the par value of common stock of $17 million as of December 31, 2018 2017 and 2016 (3) Net income attributable to noncontrolling interests for the year ended December 31, 2016 excludes S1 million attributable to a redeemable no controlling interest. See Note 1 Significant Accounting Policies for additional information See accompanying notes to consolidated financial statements. Page 43 Item 8. Financial statements and supplementary data WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Al August 31, 2018 and 2017 (in millions, except shares and per share amounts) 2018 S 785 6.373 9,565 923 17.846 3.301 6.528 8.899 1.025 19.753 Assets Current assets: Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Non-current assets: Property, plant and equipment, net Goodwill Intangible assets, net Equity method investments (see note 5) Other non-current assets Total non-current assets Total assets 13.911 16,914 11.783 6,610 1.060 S0278 68,124 13.642 15,632 10,156 6,320 506 46156 $ 66,009 S 1.966 13.566 5.862 273 21.667 251 12.494 5,473 329 18.547 12,684 2.281 12.431 1.815 5.522 19.768 4223 19.188 Liabilities and equity Current liabilities: Short-term debt Trade accounts payable (see note 17) Accrued expenses and other liabilities Income taxes Total current liabilities Non-current liabilities: Long-term debt Deferred income taxes Other non-current liabilities Total non-current liabilities Commitments and contingencies (see note 10) Equity: Preferred stock S.1 par value;authorized 32 million shares, none issued Common stock S.01 par value: authorized 3.2 billion shares, issued 1.172.513.618 at August 31, 2018 and 2017 Paid-in capital Retained camnings Accumulated other comprehensive loss Treasury stock, at cost: 220,380.200 shares at August 31, 2018 and 148,664,548 at August 31, 2017 Total Walgreens Boots Alliance, Inc. shareholders' equity Noncontrolling interests Total equity Total liabilities and equity 10,493 33.351 (3.002) (15.047) 26,007 10,339 30,137 (3.051) (9.971) 27.466 62 SOS 26.689 28.274 66,009 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY For the years ended August 31, 2018, 2017 and 2016 (in millions, except shares) Equity attributable to Walgreens Boots Alliance, Inc. Employee Accumulated Common Treasury stock other stock stock Paid in loan comprehensive amount amount capital receivable income (loss) 1 2 S (3.977) S 9,953 S (2) S (214) S Common stock shares 1.089.910.344 S Total equity August 31, 2015 Retained earnings 25.089 S 4,173 Noncontrolling i nterests 4 39 18 S 4.191 (2.778) (56) (2.834) (1.578) (1.152) (13,815,558) (1.152) Net earnings Other comprehensive income (loss), net of tax Dividends declared Treasury stock purchases Employee stock purchase and option plans Stock-based compensation Employee stock loan receivable August 31, 2016 6,891,805 238 115 1.082.986.591 S 12 S (4.934) S 10,111 S (I) S (2.992) S 2015 27,684 S 4,078 30,281 4,101 (59) (95) Net camings Other comprehensive income (loss), net of tax Dividends declared and distributions Treasury stock purchases Employee stock purchase and option plans (64,589,677) (1.723) (5.220) (5,220) 5.452.156 183 218 91 103 518 808 1,023,849,070 S 2 S (9.971) S 10,339 S - S (3.051) S $ 30,137 S 5.024 621 28.274 5.031 Stock-based compensation Noncontrolling interests acquired and arising on business combinations August 31, 2017 Net earnings Other comprehensive income (loss), net of tax Dividends declared and distributions Treasury stock purchases Employee stock purchase and option plans Stock-based compensation Noncontrolling interests contribution and other August 31, 2018 (1.610) (1.748) (5.228) (76,069,557) (5,228) 1111 4,353,905 152 174 130 952,133.418 S 1 2 S (15,047) S 10,493 S - $ (3,002) S 33.551 S 682 S 26,689 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. - 59. WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS For the years ended August 31, 2018, 2017 and 2016 (in millions, except per share amounts) 2016 $ $ Sales Cost of sales Gross profit 2018 131,537 100,745 30,792 2017 118,214 89,052 29,162 117,351 87,477 29.874 23,740 23,910 Selling, general and administrative expenses Equity earnings in AmerisourceBergen Operating income 24,569 191 6,414 5,557 6,001 (261) Other income (expense) Earnings before interest and income tax provision 6,591 5.546 5,740 693 5.975 4,853 596 5.144 760 Interest expense, net Earnings before income tax provision Income tax provision Post tax earnings from other equity method investments Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Walgreens Boots Alliance, Inc. 4.101 5,024 S 4,078 $ 4,173 Net earnings per common share: Basic Diluted 5.07 5.05 $ $ 3.80 3.78 $ $ 3.85 3.82 Dividends declared per share 1.640 $ 1.525 S Weighted average common shares outstanding: Basic Diluted 991.0 995.0 1,073.5 1,078.5 1,083.1 1,091.1 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. - 60 - WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended August 31, 2018, 2017 and 2016 (in millions) 2018 2017 2016 Comprehensive income: Net earnings $ 5,031 $ 4,101 $ 4,191 240 (241) Other comprehensive income (loss), net of tax: Pension/postretirement obligations Unrealized gain on cash flow hedges Unrecognized (loss) on available-for-sale investments Share of other comprehensive income (loss) of equity method investments Currency translation adjustments Total other comprehensive income (loss) Total comprehensive income (257) (1) 2,338) (2.834) 4,006 1,357 Comprehensive income (loss) attributable to noncontrolling interests Comprehensive income attributable to Walgreens Boots Alliance, Inc. s 5,073s 4,019 (39) 1,396 073 4,019 S 1,96 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements. WALGREENS BOOTS ALLIANCE. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended August 31, 2018, 2017 and 2016 (in millions) 2018 2017 2016 5,031 $ 4,101 $ 4,191 1,770 1,654 1,718 516 Cash flows from operating activities: Net camin Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Change in fair value of warrants and related amortization Gain on previously held equity interest Deferred income taxes Stock compensation expense Equity earnings from cquity method investments Other Changes in operating assets and liabilities: Accounts receivable, net Inventories Other current assets Trade accounts payable Accrued expenses and other liabilities Income taxes Other non-current assets and liabilities Net cash provided by operating activities (337) (322) 130 (344) 296 115 (434) 91 (143) 364 (81) 148 (391) (153) US (644) 331 1,572 1.6,90 (128) (22) 1.323 281 694 (275) 8.265 313 202 7.251 7.847 (1.367) (135) (1.325) Cash flows from investing activities Additions to property, plant and equipment Proceeds from sale leaseback transactions Proceeds from sale of businesses Proceeds from sale of other assets Business, investment and asset acquisitions, net of cash acquired Investment in Amerisource Bergen Other Net cash used for investing activities 655 155 (126) (2.360) (5.501) (3,517) Cash flows from financing activities Net change in short-term debt with maturities of 3 months or less Proceeds from debt Payments of debt Stock purchases Proceeds related to employee stock plans Cash dividends paid Other Net cash (used for provided by financing activities 586 5.900 (4.890) (5.228) (6.196) (5.220 174 217 5.991 (291) (1.152) 235 (1,563 (143) 2,606 (1.739) (98) (5.295) (1.723) (45) (12934) Effect of exchange rate changes on cash and cash equivalents Changes in cash and cash equivalents: Net (decrease) increase in cash and cash equivalents (2.516) (6.506) Cash and cash equivalents at beginning of period 3.301 9,807 Cash and cash equivalents at end of period 785 3.301 The accompanying notes to Consolidated Financial Statements are an integral part of these Statements 6,807 3,000 9,807 $