WALGREEN CO | 2013 | FY | 3

Property and Equipment
Depreciation is provided on a straight-line basis over the estimated useful lives of owned assets.  Leasehold improvements and leased properties under capital leases are amortized over the estimated useful life of the property or over the term of the lease, whichever is shorter.  Estimated useful lives range from 10 to 39 years for land improvements, buildings and building improvements; and 2 to 13 years for equipment.  Major repairs, which extend the useful life of an asset, are capitalized; routine maintenance and repairs are charged against earnings.  The majority of the business uses the composite method of depreciation for equipment.  Therefore, gains and losses on retirement or other disposition of such assets are included in earnings only when an operating location is closed, completely remodeled or impaired. Fully depreciated property and equipment are removed from the cost and related accumulated depreciation and amortization accounts.  Property and equipment consists of (in millions):

 
 
2013
 
 
2012
 
Land and land improvements
 
 
 
 
Owned locations
 
$
3,203
 
 
$
3,189
 
Distribution centers
 
 
97
 
 
 
96
 
Other locations
 
 
219
 
 
 
232
 
Buildings and building improvements
 
 
 
 
 
 
 
 
Owned locations
 
 
3,805
 
 
 
3,684
 
Leased locations (leasehold improvements only)
 
 
1,811
 
 
 
1,518
 
Distribution centers
 
 
620
 
 
 
608
 
Other locations
 
 
351
 
 
 
525
 
Equipment
 
 
 
 
 
 
 
 
Locations
 
 
5,334
 
 
 
4,995
 
Distribution centers
 
 
1,190
 
 
 
1,158
 
Other locations
 
 
755
 
 
 
586
 
Capitalized system development costs
 
 
581
 
 
 
420
 
Capital lease properties
 
 
215
 
 
 
149
 
 
 
 
18,181
 
 
 
17,160
 
Less: accumulated depreciation and amortization
 
 
6,043
 
 
 
5,122
 
 
 
$
12,138
 
 
$
12,038
 

Depreciation expense for property and equipment was $894 million in fiscal 2013, $841 million in fiscal 2012 and $809 million in fiscal 2011.

The Company capitalizes application stage development costs for significant internally developed software projects, such as upgrades to the store point-of-sale system.  These costs are amortized over a five-year period.  Amortization expense was $100 million in fiscal 2013, $70 million in fiscal 2012 and $58 million in fiscal 2011.  Unamortized costs at August 31, 2013 and 2012, were $374 million and $292 million, respectively.

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