Walgreens 2012 Annual Report Download - page 37

period for purchasing and payer contracts was 13 years for fiscal 2012 and 2011.
The weighted-average amortization period for non-compete agreements was
six years for fiscal 2012 and five years for fiscal 2011. The weighted-average
amortization period for trade names was 13 years for fiscal 2012 and nine years
for fiscal 2011. The weighted-average amortization period for other amortizable
intangible assets was 10 years for fiscal 2012 and 2011.
Expected amortization expense for intangible assets recorded at August 31, 2012,
not including amounts related to Alliance Boots that will be amortized through equity
method investment income, is as follows (In millions):
2013 2014 2015 2016 2017
$252 $217 $182 $144 $99
7. Income Taxes
The provision for income taxes consists of the following (In millions) :
2012 2011 2010
Current provision –
Federal $ 890 $ 1,301 $ 1,129
State 120 147 90
1,010 1,448 1,219
Deferred provision –
Federal 251 113 62
State (12) 19 1
239 132 63
Income tax provision $ 1,249 $ 1,580 $ 1,282
The difference between the statutory federal income tax rate and the effective tax
rate is as follows:
2012 2011 2010
Federal statutory rate 35.0 % 35.0 % 35.0 %
State income taxes, net of federal benefit 2.1 2.6 2.2
Medicare Part D Subsidy — — 1.3
Other (0.1) (0.8) (0.5)
Effective income tax rate 37.0 % 36.8% 38.0%
The deferred tax assets and liabilities included in the Consolidated Balance Sheets
consist of the following (In millions) :
2012 2011
Deferred tax assets –
Postretirement benefits $ 217 $ 214
Compensation and benefits 182 165
Insurance 157 226
Accrued rent 142 112
Tax benefits 214 327
Stock compensation 189 179
Inventory 96 143
Other 92 78
Subtotal 1,289 1,444
Less: Valuation allowance 19 91
Total deferred tax assets 1,270 1,353
Deferred tax liabilities –
Accelerated depreciation 1,332 1,176
Inventory 534 476
Intangible assets 28 49
Other 80 31
Subtotal 1,974 1,732
Net deferred tax liabilities $ 704 $ 379
At August 31, 2012, the Company has recorded deferred tax assets of $171 million
reflecting the benefit of $328 million in federal and $1,248 million in state loss
carryforwards. These deferred tax assets will expire at various dates from 2013
through 2031.
The Company believes it is more likely than not that the benefit from certain net
operating loss carryforwards will not be realized. In recognition of this risk, the
Company has recorded a valuation allowance of $19 million on certain deferred
tax assets relating to these net operating losses as of August 31, 2012.
Income taxes paid were $1,203 million, $1,320 million and $1,195 million during
the fiscal years ended August 31, 2012, 2011 and 2010, respectively.
ASC Topic 740, Income Taxes, 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 in a particular
jurisdiction. All unrecognized benefits at August 31, 2012, and August 31, 2011,
were classified as long-term liabilities on the Consolidated Balance Sheets.
The following table provides a reconciliation of the total amounts of unrecognized
tax benefits for fiscal 2012 (In millions) :
2012 2011 2010
Balance at beginning of year $ 94 $ 93 $ 128
Gross increases related to tax positions
in a prior period 100 25 12
Gross decreases related to tax positions
in a prior period (49) (68) (57)
Gross increases related to tax positions
in the current period 53 54 37
Settlements with taxing authorities (1) (8) (21)
Lapse of statute of limitations — (2) (6)
Balance at end of year $ 197 $ 94 $ 93
At August 31, 2012, 2011 and 2010, $118 million, $81 million and $57 million,
respectively, of unrecognized tax benefits would favorably impact the effective tax
rate if recognized.
The Company recognizes interest and penalties in the income tax provision in its
Consolidated Statements of Comprehensive Income. At August 31, 2012, and
August 31, 2011, the Company had accrued interest and penalties of $23 million
and $24 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 under audit examination for U.S. federal
income tax purposes for any years prior to fiscal 2010. One issue related to fiscal
2008 and 2009 remains unresolved and is currently in appeals. The Company
anticipates that this issue will be resolved in fiscal 2013. With few exceptions, it is
no longer subject to state and local income tax examinations by tax authorities for
years before fiscal 2006.
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 its financial position.
2012 Walgreens Annual Report 35