Walgreens 2009 Annual Report Download - page 33

2009 Walgreens Annual Report Page 31
($42 million is expected to be deductible for tax purposes). The remaining fair
value relates to tangible assets less liabilities assumed. The allocation of the
purchase price for each of these acquisitions, except McKesson Specialty and
IVPCARE and Drug Fair, has been finalized.
The preliminary allocation of the purchase price of McKesson Specialty and IVPCARE
and Drug Fair was accounted for under the purchase method of accounting with the
Company as the acquirer in accordance with SFAS No. 141, Business Combinations.
Any adjustments to the preliminary purchase price allocation are not expected to be
material. Goodwill and other intangible assets recorded in connection with these
acquisitions totaled $31 million and $39 million, respectively.
Operating results of the businesses acquired have been included in the consolidated
statements of income for their respective acquisition dates forward. Pro forma results
of the Company, assuming all of the acquisitions had occurred at the beginning of
each period presented, would not be materially different from the results reported.
5. Short-Term Investments
Short-term investments at August 31, 2009, include Treasury Bills totaling
$500 million maturing in September, October and November 2009. The interest
rate on the Treasury Bills is less than 1%. The investment is held to maturity
and recorded at cost in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Our Treasury Bills are short-term
maturities, less than six months, thatare purchased at a discount. We accrete
interest on the Bills through maturity. The fair value of these Treasury Bills at
August 31, 2009, approximated cost.
6. Goodwill and Other Intangible Assets
Goodwill is evaluated annuallyduring the fourth quarter of the Company’sfiscal
year or when indications of potential impairment exist. The impairment calculation
compares the implied fair value of reporting unit goodwill with the carrying amount
of thatgoodwill. If the carrying amount of reporting unit goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to that excess. No goodwill impairments were recorded in fiscal 2009. In fiscal
2008, we recorded an impairment of $9 million to our Institutional Pharmacy
reporting unit. The impairment was the result of lower financial projections of
the reporting unit.
The carrying amount and accumulated amortization of goodwill and intangible assets
consists of the following (In millions):
2009 2008
Gross carrying amount
Purchased prescription files $ 578 $ 444
Purchasing and payor contracts 266 263
Trade name 26 40
Other amortizable intangible assets 131 108
Goodwill 1,461 1,438
Total gross carrying amount 2,462 2,293
Accumulated amortization
Purchased prescription files (206) (145)
Purchasing and payor contracts (46) (25)
Trade name (11) (17)
Other amortizable intangibles (41) (25)
Total accumulated amortization (304) (212)
Total intangible assets, net $2,158 $2,081
Changes to goodwill for fiscal 2009 relate to acquisitions and the finalization of
purchase accounting.
Amortization expense for intangible assets was $148 million in 2009, $107 million
in 2008 and $62 million in 2007. The weighted-average amortization period for
purchased prescription files was six years for fiscal 2009 and fiscal 2008. The
weighted-average amortization period for purchasing and payor contracts was
13 years for fiscal 2009 and fiscal 2008. The weighted-average amortization period
for trade names was three years for fiscal 2009 and fiscal 2008. Trade names
include $10 million of indefinite life assets. The weighted-average amortization period
for other intangible assets was 10 years for fiscal 2009 and 11 years in fiscal 2008.
Expected amortization expense for intangible assets recorded at August 31, 2009,
is as follows (In millions):
2010 2011 2012 2013 2014
$145 $127 $107 $82 $50
7. Income Taxes
The provision for income taxes consists of the following (In millions):
2009 2008 2007
Current provision –
Federal $ 807 $1,201 $1,028
State 91 133 97
898 1,334 1,125
Deferred provision –
Federal 243 (59) 18
State 17 (2) 5
260 (61) 23
$1,158 $1,273 $1,148
The difference between the statutory federal income tax rate and the effective tax
rate is as follows: (In millions):
2009 2008 2007
Federal statutory rate 35.0 % 35.0% 35.0%
State income taxes, net of federal benefit 2.2 2.4 2.5
Other (0.6) (0.3) (1.5)
Effective income tax rate 36.6 % 37.1% 36.0%
The deferred tax assets and liabilities included in the Consolidated Balance Sheets
consist of the following (In millions):
2009 2008
Deferred tax assets –
Insurance $ 195 $ 184
Compensation and benefits 170 189
Postretirement benefits 170 196
Accrued rent 147 138
Stock compensation 110 80
Inventory 41 54
Other 115 146
948 987
Deferred tax liabilities –
Accelerated depreciation 913 796
Inventory 319 177
Other 71 106
1,303 1,079
Net deferred tax liabilities $ 355 $92
Income taxes paid were $768 million, $1,235 million and $1,204 million during
the fiscal years ended August 31, 2009, 2008 and 2007, respectively.
FIN 48 provides guidance regarding the recognition, measurement, presentation
and disclosure in the financial statements of tax positions taken or expected to be
taken on a tax return, including the decision whether to file or not to file in a