CVS 2002 Annual Report Download - page 28

Significant Accounting Policies
Description of business ~CVS Corporation (the “Company”)
is a leader in the retail drugstore industry in the United States.
The Company sells prescription drugs and a wide assortment of
general merchandise, including over-the-counter drugs, greeting
cards, film and photofinishing services, beauty products and
cosmetics, seasonal merchandise and convenience foods,
through its CVS/pharmacy® stores and online through
CVS.com®. The Company also provides Pharmacy Benefit
Management and Specialty Pharmacy services through
PharmaCare Management Services. As of December 28, 2002,
we operated 4,087 retail and specialty pharmacy stores in 32
states and the District of Columbia. See Note 10 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’s fiscal year is a 52 or 53 week
period ending on the Saturday nearest to December 31. Fiscal
years 2002, 2001 and 2000 ended December 28, 2002,
December 29, 2001 and December 30, 2000, respectively and
included 52 weeks. Unless otherwise noted, all references to
years relate to the Company’s fiscal year.
Reclassifications ~Certain reclassifications have been made to
the consolidated financial statements of prior years to conform
to the current year presentation.
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.
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 $64.2 million and
$53.6 million as of December 28, 2002 and December 29,
2001, respectively. The balance primarily includes amounts due
from third party providers (e.g., pharmacy benefit managers,
insurance companies and governmental agencies) and vendors.
Fair value of financial instruments ~As of December 28,
2002, the Company’s financial instruments include cash and
cash equivalents, accounts receivable, accounts payable and
debt. Due to the short-term nature of these instruments, the
Company’s carrying value approximates fair value. The carrying
amount of long-term debt was $1.1 billion and $836.8 million
and the estimated fair value was $1.1 billion and $822.0
million as of December 28, 2002 and December 29, 2001,
respectively. The fair value of long-term debt was estimated
based on rates currently offered to the Company for debt with
similar maturities. The Company also had outstanding letters of
credit, which guaranteed foreign trade purchases, with a fair
value of $5.8 million as of December 28, 2002. There were no
investments in derivative financial instruments as of December
28, 2002 or December 29, 2001.
Inventories ~Inventory is stated at the lower of cost or market
on a first-in, first-out basis using the retail method for inventory
in our stores and the cost method for inventory in our
distribution centers. The Company utilizes the retail method of
accounting to determine cost of sales and inventory.
Independent physical inventory counts are taken on a regular
basis in each location to ensure that the amounts reflected in
the accompanying consolidated financial statements are
properly stated. During the interim period between physical
inventory counts, the Company accrues for anticipated physical
inventory losses on a location-by-location basis based on
historical results and current trends.
Property and equipment ~Property, equipment and
improvements to leased premises are depreciated using the
straight-line method over the estimated useful lives of the
assets, or when applicable, the term of the lease, whichever is
shorter. Estimated useful lives generally range from 10 to 40
years for buildings, building improvements and leasehold
improvements and 5 to 10 years for fixtures and equipment.
Repair and maintenance costs are charged directly to expense
as incurred. Major renewals or replacements that substantially
extend the useful life of an asset are capitalized and
depreciated.
Following are the components of property and equipment
included in the consolidated balance sheets as of the respective
balance sheet dates:
Notes to Consolidated Financial Statements
December 28, December 29,
In millions 2002 2001
Land $132.3 $102.4
Buildings and improvements 479.2 262.2
Fixtures and equipment 1,769.3 1,608.5
Leasehold improvements 899.0 749 .3
Capitalized software 124 . 5 93.6
Capital leases 1.3 2.1
3,405.6 2,818.1
Accumulated depreciation and
amortization (1,189.8) (970.8)
$ 2,215.8 $ 1,847.3
26 CVS Corporation
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