CVS 2000 Annual Report Download - page 28

Significant Accounting Policies
Description of business ~ CVS Corporation
(“CVS” or the “Company”) is principally in the
retail drugstore business. As of December 30,
2000, the Company operated 4,133 retail and specialty pharmacy
drugstores and various mail order facilities located in 31 states
and the District of Columbia. See Note 9 for further information
about the Company’s business segments.
Basis of presentation ~ The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany balances and transactions
have been eliminated.
Fiscal Year ~ The Company operates on a “52/53 week” fiscal
year. Fiscal year 2000 ended December 30, 2000 and included
52 weeks. Fiscal 1999 and 1998 ended on January 1, 2000 and
December 26, 1998 and included 53 weeks and 52 weeks,
respectively. Unless otherwise noted, all references to years
relate to the Company’s fiscal year.
Use of estimates ~ The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates.
Reclassifications ~ Certain reclassifications have been made to
the consolidated financial statements of prior years to conform to
the current year presentation.
Cash and cash equivalents ~ Cash and cash equivalents consist
of cash and temporary investments with maturities of three months
or less when purchased.
Accounts receivable ~ Accounts receivable are stated net of an
allowance for uncollectible accounts of $45.7 million and $41.1
million as of December 30, 2000 and January 1, 2000, respectively.
The balance primarily includes amounts due from third party
providers (e.g., pharmacy benefit managers, insurance companies
and governmental agencies) and vendors.
Inventories ~ Inventories are stated at the lower of cost or
market using the first-in, first-out method.
Financial instruments ~ Financial instruments include cash
and cash equivalents, accounts receivable, accounts payable and
short-term borrowings. Due to the short-term nature of these
instruments, the Company’s carrying value approximates fair
value.The fair value of long-term debt was $290 million as of
December 30, 2000. The Company has no investments in
derivative financial instruments.
Property and equipment ~ Depreciation of property and
equipment is computed on a straight-line basis, generally over the
estimated useful lives of the asset or, when applicable, the term
of the lease, whichever is shorter. Estimated useful lives generally
range from 10 to 40 years for buildings and improvements, 3 to
10 years for fixtures, equipment and software and 5 to 10 years for
leasehold improvements.
Following are the components of property and equipment
included in the consolidated balance sheets as of the respective
balance sheet dates:
Impairment of long-lived assets ~ The Company primarily
groups and evaluates fixed and intangible assets at an individual
store level, which is the lowest level at which individual cash flows
can be identified. Goodwill is allocated to individual stores based
on historical store contribution, which approximates store cash
flow. Other intangible assets (i.e., patient prescription files and
favorable lease interests) are typically store specific and, therefore,
are directly assigned to individual stores.When evaluating assets
for potential impairment, the Company first compares the
carrying amount of the asset to the asset’s estimated future
cash flows (undiscounted and without interest charges). If the
estimated future cash flows used in this analysis are less than the
carrying amount of the asset, an impairment loss calculation is
prepared.The impairment loss calculation compares the carrying
amount of the asset to the asset’s estimated future cash flows
(discounted and with interest charges). If the carrying amount
exceeds the asset’s estimated future cash flows (discounted
and with interest charges), an impairment loss is recorded.
Notes to Consolidated Financial Statements
26
CVS Corporation
1
December 30, January 1,
In millions 2000 2000
Land $ 97.1 $ 89.6
Buildings and improvements 333.1 239.1
Fixtures, equipment and software 1,536.6 1,488.4
Leasehold improvements 632.3 585.3
Capital leases 2.2 2.2
2,601.3 2,404.6
Accumulated depreciation and
amortization (859.2) (803.6)
$ 1,742.1 $ 1,601.0