CVS 2002 Annual Report Download - page 33

Intangible assets other than goodwill are required to be
separated into two categories: finite-lived and indefinite-lived.
Intangible assets with finite useful lives are amortized over their
estimated useful life, while intangible assets with indefinite
useful lives are not amortized. The Company currently has no
intangible assets with indefinite lives.
Following is a summary of the Company’s amortizable intangible
assets as of the respective balance sheet dates:
The amortization expense for these intangible assets totaled
$53.3 million in 2002, $52.7 million in 2001 and $48.2 million in
2000. The anticipated annual amortization expense for these
intangible assets is $57.2 million in 2003, $49.5 million in 2004,
$43.3 million in 2005, $40.2 million in 2006, and $38.0 million
in 2007.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. Effective December 30, 2001,
the Company adopted SFAS No. 142, “Goodwill and Other
Intangible Assets.” As a result of the adoption, goodwill is no
longer being amortized, but is subject to annual impairment
reviews, or more frequent reviews if events or circumstances
indicate there may be an impairment. The Company groups and
evaluates goodwill for impairment at the reporting unit level
annually, or whenever events or circumstances indicate there
may be an impairment. When evaluating goodwill for potential
impairment, the Company first compares the fair value of the
reporting unit, based on estimated future discounted cash flows,
with its carrying amount. If the estimated fair value of the
reporting unit is less than its carrying amount, an impairment
loss calculation is prepared. The impairment loss calculation
compares the implied fair value of reporting unit goodwill with
the carrying amount of that goodwill. If the carrying amount of
reporting unit goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal
to that excess. Upon adoption, the Company performed the
required implementation impairment review, which resulted in no
impairment of goodwill. During 2002, the Company also
performed its required annual goodwill impairment test, which
concluded there was no impairment of goodwill.
The following summary details the after-tax impact, on a pro
forma basis, of discontinuing the amortization of goodwill on
net earnings and earnings per common share (“EPS”) for the
respective years:
The carrying amount of goodwill as of December 28, 2002 was
$878.9 million. During 2002, gross goodwill increased $4.0
million, primarily due to store acquisitions. There was no
impairment of goodwill during 2002.
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2002 Annual Report
4
In millions 2002 2001 2000
Net earnings:
As reported $716.6 $ 413.2 $ 746.0
Goodwill amortization —28.2 31.9
As adjusted 716.6 441.4 777.9
Basic EPS:
As reported $1.79$1.02 $1.87
Goodwill amortization —0.07 0.08
As adjusted 1.79 1.09 1.95
Diluted EPS:
As reported $1.75$1.00 $1.83
Goodwill amortization —0.07 0.08
As adjusted 1.75 1.07 1.91
December 28, 2002 December 29, 2001
Gross Gross
Carrying Accum. Carrying Accum.
In millions Amount Amort. Amount Amort.
Customer lists and
Covenants not to
compete(1) $ 464.5 $(194.1) $ 379.7 $(135.1)
Favorable leases and
Other(2) 153 . 1 ( 72 . 1 ) 134 . 7 ( 61 . 0 )
$ 617.6 $(266.2) $ 514.4 $(196.1)
(1) The increase in the gross carrying amount during 2002 was primarily due to the acquisi-
tion of customer lists.
(2) The increase in the gross carrying amount during 2002 was primarily due to the acquisi-
tion of leases with rents below market rates.