CVS 2001 Annual Report Download - page 22

CVS Corporation
20
Significant Accounting Policies
Description of business ~ CVS Co rpo ratio n, to gether with
its subsidiaries (“CVS” o r the “Co mpany”) is principally in the
retail drugsto re business. As of December 29, 2001, the Co mpany
o perated 4,191 retail and specialty pharmacy drugsto res and
vario us mail o rder facilities lo cated in 33 states and the District
of Co lumbia. See Note 10 fo r further informatio n abo ut the
Co mpany’s business segments.
Basis of presentat ion ~ The co nso lidated financial statements
inc lude the acco unts of the Co mpany and its wholly-o wned
subsidiaries. All material interco mpany balances and transactio ns
have been eliminated.
Fiscal Year ~ The Co mpany o perates o n a “52/ 53 week” fiscal
year. Fiscal year 2001 and 2000 ended December 29, 2001 and
December 30, 2000, respectively and included 52 weeks. Fiscal
1999 ended January 1, 2000 and inc luded 53 weeks. Unless
o therwise no ted, all references to years relate to the Co mpany’s
fiscal year.
Use of estimat es ~ The preparatio n of financial statements in
co nfo rmity with generally accepted acco unting principles requires
management to make estimates and assumptio ns that affect the
repo rted amo unts in the conso lidated financial statements and
acco mpanying no tes. Actual results co uld differ from tho se
estimates.
Cash and cash equivalents ~ Cash and cash equivalents co nsist
of cash and tempo rary investments with maturities o f three
mo nths o r less when purchased.
Account s receivable ~ Acco unts receivable are stated net o f an
allowance fo r unco llectible acco unts o f $53.6 millio n and $47.9
millio n as of December 29, 2001 and December 30, 2000,
respectively. The balanc e primarily includes amo unts due fro m
third party pro viders ( e.g., pharmac y benefit managers, insurance
co mpanies and go vernmental agencies) and vendo rs.
Fai r value of financial i nstruments ~ As o f December 29, 2001,
the Co mpany’s financ ial instruments inc lude cash and cash
equivalents, receivables, acco unts payable and debt. Due to the
sho rt- term nature o f c ash and c ash equivalents, receivables,
acco unts payable and commercial paper, the Co mpany’s carrying
value approximates fair value. The carrying amount o f lo ng-term
debt was $836.8 millio n and $558.4 millio n and the estimated
fair value was $822.0 millio n and $530.6 millio n as o f December
29, 2001 and December 30, 2000, respectively. The fair value o f
lo ng- term debt was estimated based o n rates currently o ffered to
the Co mpany fo r debt with similar maturities. The Co mpany has
no derivative financial instruments.
I nvent ories ~ Invento ries are stated at the lo wer of co st o r
market using the first-in, first-o ut metho d. The Co mpany utilizes
the retail method of ac co unting to determine co st of sales and
inventory. Independent physical invento ry co unts are taken on
a regular basis in each loc atio n to ensure that the amo unts
reflected in the acco mpanying co nso lidated financial statements
are pro perly stated. During the interim perio d between physical
inventory counts, the Co mpany accrues fo r anticipated physical
inventory lo sses o n a lo catio n-by-loc atio n basis based on
histo rical results and current trends.
Propert y and equipment ~ Deprec iation of pro perty and
equipment is co mputed o n a straight-line basis, generally o ver
the estimated useful lives o f the assets, o r when applicable, the
term o f the lease, whichever is sho rter. Estimated useful lives
generally range fro m 10 to 40 years fo r buildings, building
impro vements and leaseho ld impro vements and 5 to 10 years fo r
fixtures, equipment and software.
Fo llo wing are the co mpo nents o f pro perty and equipment
inc luded in the co nso lidated balanc e sheets as of the respective
balanc e sheet dates:
I mpairment of long-lived assets ~ The Co mpany gro ups and
evaluates fixed and intangible assets fo r impairment at an
individual store level, which is the lo west level at which
individual cash flo ws can be identified. Go o dwill is allo cated to
individual stores based o n histo rical sto re co ntributio n, while
o ther intangible assets ( primarily customer lists and purchased
lease interests) are typically store specific. When evaluating
assets fo r po tential impairment, the Co mpany first co mpares the
carrying amo unt o f the asset to the asset’s estimated future cash
flo ws ( undisco unted and witho ut interest charges) . If the
estimated future cash flo ws used in this analysis are less than
the carrying amo unt o f the asset, an impairment lo ss calculatio n
is prepared. The impairment lo ss calculatio n co mpares the
carrying amo unt o f the asset to the asset’s estimated future cash
flo ws ( discounted and with interest c harges) . If the carrying
amo unt exceeds the asset’s estimated future cash flo ws
( disco unted and with interest c harges) , then the intangible
assets are written down first, fo llo wed by the o ther lo ng- lived
assets, to fair value.
Notes to Consolidated Financial Statements
1
December 2 9 , Dec embe r 30,
In millions 200 1 2000
Land $ 102.4 $ 97.1
Buildings and impro vements 262.2 333.1
Fixtures, equipment and software 1,702.1 1,536.6
Leaseho ld improvements 749.3 632.3
Capital leases 2.1 2.2
2,818.1 2,601.3
Acc umulated depreciatio n and
amo rtizatio n (970.8) ( 859. 2)
$ 1,847.3 $ 1,742.1