Walgreens 2014 Annual Report Download - page 49

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appreciation since the original valuation in the price of the Company’s stock used as partial consideration for the
purchase of the remaining 55% ownership interest in Alliance Boots. This resulted in the recognition of a non-
cash loss on the exercise of the call option of $866 million.
Combined synergies across both companies were approximately $491 million in fiscal 2014. Fiscal 2015
combined synergies are currently estimated to be approximately $650 million. The three-month lag impacts the
quarterly and fiscal year timing of when Alliance Boots results and synergies will be reflected in the equity
earnings in Alliance Boots included in our financial statements. See “Cautionary Note Regarding Forward-
Looking Statements” below. Because of the three-month lag and the timing of the closing of this investment, our
financial statements for the year ended August 31, 2013, reflect twelve months of the dilutive effect of the
incremental shares and interest expense associated with our Alliance Boots investment, but only ten months
(August 2012 through May 2013) of results of Alliance Boots are reflected in the equity earnings in Alliance
Boots included in our Consolidated Statements of Earnings for the twelve-month period.
The Alliance Boots business is seasonal in nature, typically generating a higher proportion of revenue and
earnings in the winter holiday and cold and flu season. Because we utilize a three-month lag in reporting equity
income from our investment in Alliance Boots, the results of Alliance Boots for December, January and February
are reflected in the equity income included in our financial statements for the fiscal quarter ending May 31. See
“Cautionary Note Regarding Forward-Looking Statements” below.
Investments accounted for under the equity method are recorded initially at cost and subsequently adjusted for
the Company’s share of the net income or loss and cash contributions and distributions to or from these
entities. The Company’s investment in Alliance Boots was recorded as an asset with a $7.2 billion aggregate
value on the Company’s August 31, 2014 balance sheet, which represented 29.1% of the Company’s long-lived
assets as of that date. Because the Company’s investment in Alliance Boots is denominated in a foreign currency
(British pounds Sterling), translation gains or losses impact the value of the investment. See Note 5 to our
Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.
On March 19, 2013, we, in conjunction with Alliance Boots and AmerisourceBergen Corporation
(AmerisourceBergen) announced various agreements and arrangements, including a ten-year pharmaceutical
distribution agreement between ourselves and AmerisourceBergen pursuant to which we will source branded and
generic pharmaceutical products from AmerisourceBergen; an agreement which provides AmerisourceBergen
the ability to access generics and related pharmaceutical products through Walgreens Boots Alliance
Development GmbH, a global sourcing joint venture between ourselves and Alliance Boots; and agreements and
arrangements pursuant to which we and Alliance Boots together have the right, but not the obligation, to
purchase a minority equity position in AmerisourceBergen and gain associated representation on
AmerisourceBergen’s board of directors in certain circumstances. At August 31, 2014, we owned approximately
5.1% of the outstanding common shares in AmerisourceBergen and held one position on AmerisourceBergen’s
Board of Directors.
AmerisourceBergen began to distribute all branded pharmaceutical products that we historically sourced from
distributors and suppliers, effective September 1, 2013. In calendar year 2014, AmerisourceBergen began to
distribute increasingly significant levels of generic pharmaceutical products that in the past we self-
distributed. At August 31, 2014, the transition to AmerisourceBergen distribution was substantially complete. In
addition to the information in this report, please refer to our Current Report on Form 8-K filed on March 20,
2013, for more detailed information regarding these agreements and arrangements.
STORE CLOSURES AND COST REDUCTION INITIATIVES
On March 24, 2014, our Board of Directors approved a plan to close underperforming stores in efforts to
optimize and focus resources in a manner intended to increase shareholder value. As of August 31, 2014, we
have closed 67 locations and incurred pre-tax charges associated with the plan of $209 million of which $137
million related to lease termination costs, $71 million related to asset impairment charges and $1 million in
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