CVS 2011 Annual Report Download - page 72

Notes to Consolidated Financial Statements
CVS CAREMARK 70 2011 ANNUAL REPORT
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
in millions 2011 2010 2009
Beginning balance $ 35 $ 61 $ 257
Additions based on tax positions related to the current year 3 1 1
Additions based on tax positions related to prior years 13 2 12
Reductions for tax positions of prior years — (10) (6)
Expiration of statutes of limitation (7) (16) (155)
Settlements (6) (3) (48)
Ending balance $ 38 $ 35 $ 61
There are no material reserves established at December 31,
2011 for income tax positions for which the ultimate deduct-
ibility is highly certain but for which there is uncertainty about
the timing of such deductibility. If present, such items would
impact deferred tax accounting, not the annual effective
income tax rate, and would accelerate the payment of cash
to the taxing authority to an earlier period.
The total amount of unrecognized tax benefits that, if recog-
nized, would affect the effective income tax rate is approxi-
mately $25 million, after considering the federal benefit of
state income taxes.
13 COMMITMENTS AND CONTINGENCIES
Lease Guarantees
Between 1991 and 1997, the Company sold or spun off a
number of subsidiaries, including Bob’s Stores, Linens ‘n
Things, Marshalls, Kay-Bee Toys, Wilsons, This End Up and
Footstar. In many cases, when a former subsidiary leased
a store, the Company provided a guarantee of the store’s
lease obligations. When the subsidiaries were disposed
of, the Company’s guarantees remained in place, although
each initial purchaser has indemnified the Company for any
lease obligations the Company was required to satisfy. If
any of the purchasers or any of the former subsidiaries were
to become insolvent and failed to make the required pay-
ments under a store lease, the Company could be required
to satisfy these obligations.
As of December 31, 2011, the Company guaranteed approx-
imately 75 such store leases (excluding the lease guaran-
tees related to Linens ‘n Things, which are discussed in Note
3 previously in this document), with the maximum remaining
lease term extending through 2022. Management believes
the ultimate disposition of any of the remaining guarantees
The Company and its subsidiaries are subject to U.S. fed-
eral income tax as well as income tax of numerous state and
local jurisdictions. Substantially all material income tax mat-
ters have been concluded for fiscal years through 2006. The
Company and its subsidiaries anticipate that a number of
income tax examinations will conclude and statutes of limita-
tion for open years will expire over the next twelve months,
which may cause a utilization or reduction of the Company’s
reserve for uncertain tax positions of up to approximately
$10 million.
During 2011, the Internal Revenue Service (the “IRS”) com-
pleted an examination of the Company’s 2010 consolidated
U.S. income tax return pursuant to the Compliance Assurance
Process (“CAP”) program. The CAP program is a voluntary
program under which taxpayers seek to resolve all or most
issues with the IRS prior to or soon after the filing of their U.S.
income tax returns, in lieu of being audited in the traditional
manner. The IRS is currently examining the Company’s 2011
consolidated U.S. income tax year pursuant to the CAP pro-
gram. The Company and its subsidiaries are also currently
under income tax examinations by a number of state and local
tax authorities. As of December 31, 2011, no examination has
resulted in any proposed adjustments that would result in a
material change to the Company’s results of operations, finan-
cial condition or liquidity.
The Company recognizes interest accrued related to unrec-
ognized tax benefits and penalties in income tax expense.
During the years ended December 31, 2011, 2010 and
2009, the Company recognized interest of approximately
$2 million, $3 million and $5 million, respectively. The
Company had approximately $8 million and $11 million
accrued for interest and penalties as of December 31, 2011
and 2010, respectively.
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