Walgreens 2010 Annual Report Download - page 35

Expected amortization expense for intangible assets recorded at August 31, 2010,
is as follows (In millions):
2011 2012 2013 2014 2015
$204 $185 $159 $124 $64
6. Income Taxes
The provision for income taxes consists of the following (In millions):
2010 2009 2008
Current provision —
Federal $ 1,129 $ 807 $ 1,201
State 90 91 133
1,219 898 1,334
Deferred provision —
Federal 62 243 (59)
State 1 17 (2)
63 260 (61)
$ 1,282 $ 1,158 $ 1,273
The difference between the statutory federal income tax rate and the effective tax
rate is as follows:
2010 2009 2008
Federal statutory rate 35.0 % 35.0 % 35.0 %
State income taxes, net of federal benefit 2.2 2.2 2.4
Medicare Part D Subsidy 1.3 0.0 0.0
Other (0.5) (0.6) (0.3)
Effective income tax rate 38.0 % 36.6% 37.1%
The deferred tax assets and liabilities included in the Consolidated Balance Sheets
consist of the following (In millions):
2010 2009
Deferred tax assets —
Postretirement benefits $ 179 $ 170
Compensation and benefits 228 170
Insurance 190 195
Accrued rent 176 147
Tax benefits 138 25
Stock compensation 133 110
Inventory 59 41
Other 123 90
1,226 948
Deferred tax liabilities —
Accelerated depreciation 1,050 913
Inventory 356 319
Intangible assets 117 32
Other 45 39
1,568 1,303
Net deferred tax liabilities $ 342 $ 355
Income taxes paid were $1,195 million, $768 million and $1,235 million during the
fiscal years ended August 31, 2010, 2009 and 2008, respectively.
ASC Topic 740 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 particular
jurisdiction. All unrecognized benefits at August 31, 2010, and August 31, 2009,
were classified as long-term liabilities on our consolidated balance sheet.
The following table provides a reconciliation of the total amounts of unrecognized tax
benefits for fiscal 2010 (In millions):
2010 2009 2008
Balance at beginning of year $ 128 $ 64 $ 55
Gross increases related to tax positions
in a prior period 12 38 7
Gross decreases related to tax positions
in a prior period (57) (5) (21)
Gross increases related to tax positions
in the current period 37 38 28
Settlements with taxing authorities (21) (1) (3)
Lapse of statute of limitations (6) (6) (2)
Balance at end of year $ 93 $ 128 $ 64
At August 31, 2010, and August 31, 2009, $57 million and $43 million, respectively, of
unrecognized tax benefits would favorably impact the effective tax rate if recognized.
The Company recognizes interest and penalties in income tax provision in its
Consolidated Statements of Earnings. At August 31, 2010, and August 31, 2009,
the Company had accrued interest and penalties of $20 million and $18 million,
respectively.
The Company files a consolidated U.S. federal income tax return, as well as income
tax returns in various states. It is no longer subject to U.S. federal income tax
examinations for years before fiscal 2008, except for one issue related to fiscal
2006 and 2007 currently in appeals. With few exceptions, it is no longer subject
to state and local income tax examinations by tax authorities for years before
fiscal 2005. The Company anticipates that the Internal Revenue Service (IRS) will
complete its audit of fiscal years 2008 and 2009 in fiscal 2012.
It is reasonably possible that the amount of the unrecognized tax benefit with
respect to certain unrecognized tax positions will increase or decrease during
the next 12 months; however, the Company does not expect the change to have
a material effect on its results of operations or our financial position.
7. Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consists of the following at August 31
(In millions):
2010 2009
Short-Term Borrowings —
Commercial paper $ — $ —
Current maturities of loans assumed through
the purchase of land and buildings; various
interest rates from 5.00% to 8.75%;
various maturities from 2011 to 2035 7 10
Other 5 5
Total short-term borrowings $ 12 $ 15
Long-Term Debt —
4.875% unsecured notes due 2013 net of
unamortized discount and interest rate swap
fair market value adjustment (see Note 8) $ 1,348 $ 1,294
5.250% unsecured notes due 2019 net of
unamortized discount 995 995
Loans assumed through the purchase of land and buildings;
various interest rates from 5.00% to 8.75%; various
maturities from 2011 to 2035 53 57
2,396 2,346
Less current maturities (7) (10)
Total long-term debt $ 2,389 $ 2,336
2010 Walgreens Annual Report Page 33