Walgreens 2015 Annual Report Download - page 11

distribution, while at the same time outsourcing non-core activities. These services include pre-wholesale and
contract logistics (mainly under the Alloga brand), direct deliveries to pharmacies, and innovative and
specialized healthcare services, covering clinical homecare, medicine support, dispensing services, medicine
preparation and clinical trial support (mainly under the Alcura brand).
Combined with local engagement, scale is important in pharmaceutical wholesaling. We are one of the largest
pharmaceutical wholesalers and distributors in Europe, and we rank as one of the top three in market share in
many of the individual countries in which we operate.
Our sales, gross profit margin and gross profit dollars are impacted by, among other things, government actions,
which typically seek to reduce the growth in prescription drug consumption, reduce reimbursement rates and
increase generic drug utilization. A greater proportion of generic drugs, whether as a result of government
actions, generic conversions or other factors, typically has an adverse effect on our revenues. However, in the
wholesale division we typically earn equal or better gross margins on generic drugs than on branded drugs,
although there are exceptions.
Changes in manufacturers’ product distribution business models also can impact the division’s sales and gross
margin. For example, when pharmaceutical drug manufacturers introduce fee-for-service contracts, it reduces our
sales even if we are successful in winning these contracts, as we only recognize sales in the amount of the fees
charged. Other manufacturer services, including our pre-wholesale and contract logistics operations are typically
on a fee-for-service basis.
In addition, performance as measured in U.S. dollars is impacted by the exchange rates used to translate these
amounts into U.S. dollars, the exchange rate of British Pounds Sterling and the Euro being the most significant.
The division’s sales are subject to less seasonality than our other divisions.
Intellectual property and licenses
We market products and services under various trademarks, trade dress and trade names and rely on a
combination of patent, copyright, trademark, service mark, and trade secret laws, as well as contractual
restrictions to establish and protect our proprietary rights. We own numerous domain names, hold numerous
patents, have registered numerous trademarks, and have filed applications for the registration of a number of our
other trademarks and service marks in various jurisdictions. We hold assorted business licenses (such as
pharmacy, occupational, liquor and cigarette) having various lives within multiple legal jurisdictions, which are
necessary for the normal operation of our business.
Seasonal variations in business
Our business is affected by a number of factors including, among others, our sales performance during holiday
periods (including particularly the winter holiday season) and during the cough, cold and flu season (the timing
and severity of which is difficult to predict), significant weather conditions, the timing of our own or competitor
discount programs and pricing actions, and the timing of changes in levels of reimbursement from governmental
agencies and other third party payers. See “Summary of Quarterly Results (Unaudited)” in the Consolidated
Financial Statements included in Part II, Item 8 below.
Sources and availability of raw materials
Inventories are purchased from numerous domestic and foreign suppliers. We do not believe that the loss of any
one supplier or group of suppliers under common control would have a material adverse effect on our business or
that of any of our divisions.
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