Walgreens 2013 Annual Report Download - page 41

The deferred tax assets and liabilities included in the Consolidated Balance Sheets
consist of the following (In millions):
2013 2012
Deferred tax assets –
Postretirement benefits $ 218 $ 217
Compensation and benefits 136 182
Insurance 121 157
Accrued rent 157 142
Tax benefits 159 214
Stock compensation 159 189
Inventory 95 96
Other 96 92
Subtotal 1,141 1,289
Less: Valuation allowance 19 19
Total deferred tax assets 1,122 1,270
Deferred tax liabilities –
Accelerated depreciation 1,369 1,332
Inventory 491 534
Intangible assets 53 28
Equity method investment 21 —
Other 4 80
Subtotal 1,938 1,974
Net deferred tax liabilities $ 816 $ 704
At August 31, 2013, the Company has recorded deferred tax assets of $119 million
reflecting the benefit of $212 million in federal and $1.1 billion in state loss carryforwards.
These deferred tax assets will expire at various dates from 2014 through 2032.
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, 2013.
Income taxes paid were $1.2 billion for fiscal years 2013 and 2012 and
$1.3 billion in fiscal 2011.
ASC Topic 740, Income Taxes, provides guidance regarding the recognition, measure-
ment, 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. As of August 31, 2013, approximately $32 million of unrecognized tax
benefits were reported as current income tax liabilities, with the balance classified as
long-term liabilities on the Consolidated Balance Sheets. The Company’s unrecognized
tax benefits at August 31, 2012, were all classified as long-term liabilities on the
Consolidated Balance Sheets.
The following table provides a reconciliation of the total amounts of unrecognized
tax benefits (In millions):
2013 2012 2011
Balance at beginning of year $ 197 $ 94 $ 93
Gross increases related to tax positions
in a prior period 18 100 25
Gross decreases related to tax positions
in a prior period (32) (49) (68)
Gross increases related to tax positions
in the current period 30 53 54
Settlements with taxing authorities (2) (1) (8)
Lapse of statute of limitations (3) — (2)
Balance at end of year $ 208 $ 197 $ 94
At August 31, 2013, 2012 and 2011, $116 million, $118 million and $81 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, 2013, and
August 31, 2012, the Company had accrued interest and penalties of $28 million
and $23 million, respectively. For the year ended August 31, 2013, the amount
reported in income tax expense related to interest and penalties was $5 million.
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. 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 decrease during the next 12 months by up
to approximately $32 million. The decrease is expected to occur as a result of settle-
ments with the U.S. federal tax authorities for fiscal years 2008 through 2011 and
lapses in the statute of limitations. The change will not have a material effect on the
Company’s results of operations or financial position.
During the year, the Company received tax holidays from Swiss cantonal income
taxes relative to its Swiss operations. The income tax holidays are expected to
extend through September 2022. The holidays had an immaterial impact in the
current fiscal year.
9. Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consist of the following at August 31
(In millions) :
2013 2012
Short-Term Borrowings –
Current maturities of loans assumed through
the purchase of land and buildings; various
interest rates from 5.000% to 8.750%;
various maturities from 2015 to 2035 $ 2 $ 9
4.875% unsecured notes due 2013 net of
unamortized discount and interest rate swap
fair market value adjustment (see Note 10) — 1,305
Unsecured variable rate notes due 2014,
net of unamortized discount 550 —
Other 18 5
Total short-term borrowings $ 570 $ 1,319
Long-Term Debt –
1.000% unsecured notes due 2015,
net of unamortized discount $ 749 $ —
1.800% unsecured notes due 2017,
net of unamortized discount 998 —
5.250% unsecured notes due 2019,
net of unamortized discount and interest rate swap
fair market value adjustment (see Note 10) 994 1,030
3.100% unsecured notes due 2022,
net of unamortized discount 1,199 —
4.400% unsecured notes due 2042,
net of unamortized discount 496 —
Bridge Facility — 3,000
Loans assumed through the purchase of land and buildings;
various interest rates from 5.000% to 8.750%;
various maturities from 2015 to 2035 43 52
4,479 4,082
Less current maturities (2) (9)
Total long-term debt $ 4,477 $ 4,073
On July 17, 2008, the Company issued notes totaling $1.3 billion bearing an interest
rate of 4.875% paid semiannually in arrears on February 1 and August 1 of each
year, beginning on February 1, 2009. The notes matured and were repaid in full
on August 1, 2013.
On August 2, 2012, the Company borrowed $3.0 billion of its available $3.5 billion
variable rate 364-day bridge term loan obtained in connection with the investment in
Alliance Boots. Interest was reset monthly based upon the one-month LIBOR plus a
fixed margin, paid on a monthly basis.
2013 Walgreens Annual Report 39