Walgreens 2014 Annual Report Download - page 12

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board of directors in certain circumstances. The distribution agreement resulted in the distribution by
AmerisourceBergen of branded pharmaceutical products that Walgreens historically had sourced from
distributors and suppliers, effective September 1, 2013. In the second quarter of the current fiscal year,
AmerisourceBergen began distributing generic pharmaceutical products that we previously self-distributed, and
that transition was substantially complete by the end of fiscal 2014.
On June 25, 2014, the Company completed the sale of a majority interest in its subsidiary, Take Care Employer
Solutions, LLC (Take Care Employer) to Water Street Healthcare Partners (Water Street). At the same time,
Water Street made an investment in CHS Health Services (CHS), an unrelated entity and merged CHS with Take
Care Employer to create a leading worksite health company dedicated to improving the cost and quality of
employee health care. Water Street owns a majority interest in the new company while Walgreens owns a
significant minority interest and has representatives on the new company’s board of directors. The Company
recorded an immaterial gain on the transaction.
We utilize our extensive retail network as a channel to provide affordable quality health and wellness services to
our customers and patients, as illustrated by our ability to play a significant role in providing flu vaccines and
other immunizations. We market our products and services to employers, governments, managed care
organizations and pharmacy benefit managers, expanding beyond our traditional retail consumer model to
contract directly with our payers. Through our more than 70,000 health care providers including pharmacists,
pharmacy technicians, nurse practitioners and other health related professionals, Walgreens expects to continue
to play a growing role in government and employer efforts to control escalating health care costs.
Prescription sales continued to be a large portion of the Company’s business. In fiscal 2014, prescriptions
accounted for 64.2% of sales compared to 62.9% in fiscal 2013. Third party sales, where reimbursement is
received from managed care organizations, government and private insurance, were 96.5% of fiscal 2014
prescription sales which increased slightly from 95.8% in fiscal 2013. Overall, Walgreens filled approximately
699 million prescriptions in fiscal 2014, an increase of 16 million, or 2.4%, from fiscal 2013. Adjusted to 30-day
equivalents, prescriptions filled were 856 million in fiscal 2014 and 821 million in fiscal 2013. Walgreens
accounted for 19.0% of the U.S. retail prescription drug market in fiscal 2014 compared to 18.7% in fiscal
2013. Walgreens expects the aging population and the continued development of innovative drugs that improve
quality of life and control health care costs will continue to drive demand for prescription drugs.
During fiscal 2014, the Company added $1.1 billion to property and equipment, primarily related to store
improvements. Capital expenditures for fiscal 2015 are currently expected to be $1.7 billion, excluding
acquisitions and prescription file purchases, although the actual amount may vary depending upon a variety of
factors, including, among other things, the timing of implementation of certain capital projects and the closing of
the second step transaction.
We plan to continue pursuing our goal to become a global leader in pharmacy, health and well-being solutions
and the first choice for health and daily living in communities we serve, all designed to help our customers get,
stay and live well. Our strategies are designed to further transform our traditional drugstore into a “retail health
and daily living” store, creating community-centric healthcare integration with expanded pharmacy, health and
wellness solutions. We seek to continue to deliver an outstanding customer experience through enhanced
employee engagement and to expand our product and service offerings across new channels and markets where,
in addition to our stores, customers and patients can utilize our health system pharmacies, Walgreens.com,
mobile applications and social media sites.
Description of Business
Principal products produced and services rendered
The Company’s drugstores are engaged in the retail sale of prescription and non-prescription drugs and general
merchandise. General merchandise includes, among other things, convenience and fresh foods, household items,
4