| The accompanying Notes to Consolidated Financial Statements are integral parts of these statments. Notes to Consolidated financial Statements 1.Summary of Major Accounting Policies Description of Business The company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31,2013 there was 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011. Allowance for Doubtful Accounts The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions): | | | 2013 | 2012 | 2011 | | Balance at beginning of year | $99 | $101 | $104 | | Bad debt provision | | $124 | $107 | $88 | | Write-offs | | ($69) | ($109) | ($91) | | Balance at end of year | $154 | $99 | $101 | Inventories Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense. 3.Leases The company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the company becomes legally obligated to make rent payments or the date the Company has to right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales. Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in Millions): | | | | Capital Lease | Operatin Lease | | 2014 | | | | $19 | $2,536 | | 2015 | | | | $19 | $2,514 | | 2016 | | | | $18 | $2,464 | | 2017 | | | | $17 | $2,389 | | 2018 | | | | $15 | $2,292 | | Later | | | | $270 | $23,507 | | Total Minimum lease Payments | | $358 | $35,702 | |
