CVS 2004 Annual Report Download - page 25
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Please find page 25 of the 2004 CVS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.the carrying value of an asset may not be recoverable. We group
and evaluate long-lived assets for impairment at the individual
store level, which is the lowest level at which individual cash
flows can be identified. When evaluating long-lived assets for
potential impairment, we first compare the carrying amount
of the asset to the individual store’s estimated future cash flows
(undiscounted and without interest charges). If the estimated
future cash flows 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 individual store’s estimated future cash flows (discounted
and with interest charges). If required, an impairment loss
is recorded for the portion of the asset’s carrying value that
exceeds the asset’s estimated future cash flow (discounted
and with interest charges).
Our impairment loss calculation contains uncertainty since
we must use judgment to estimate each store’s future sales,
profitability and cash flows. When preparing these estimates,
we consider each store’s historical results and current operating
trends and our consolidated sales, profitability and cash
flow results and forecasts. These estimates can be affected
by a number of factors including, but not limited to, general
economic conditions, the cost of real estate, the continued efforts
of third party organizations to reduce their prescription drug
costs, the continued efforts of competitors to gain market share
andconsumer spending patterns. Effective for fiscal 2002, we
adopted Statement of Financial Accounting Standards (“SFAS”)
No. 144, “Accounting for Impairment or Disposal of Long-Lived
Assets.” The adoption did not have a material impact on our
impairment loss methodology and we have not made any
other material changes to our impairment loss assessment
methodology during the past three years.
CLOSED STORE LEASE LIABILITY
We account for closed store lease termination costs in
accordance with SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities.” As such, when a leased store
is closed, we record a liability for the estimated present value of
the remaining obligation under the non-cancelable lease, which
includes future real estate taxes, common area maintenance and
other charges, if applicable. The liability is reduced by estimated
future sublease income.
The calculation of our closed store lease liability contains
uncertainty since we must use judgment to estimate the timing
and duration of future vacancy periods, the amount and timing
offuture lump sum settlement payments and the amount and
timing of potential future sublease income. When estimating
these potential termination costs and their related timing, we
consider a number of factors, which include, but are not limited
to, historical settlement experience, the owner of the property,
the location and condition of the property, the terms of the
underlying lease, the specific marketplace demand and general
economic conditions. We have not made any material changes
in the reserve methodology used to record closed store lease
reserves during the past three years.
SELF-INSURANCE LIABILITIES
Weare self insured for certain losses related to general liability,
worker’s compensation and auto liability although we maintain
stop loss coverage with third party insurers to limit our total
liability exposure.
The estimate of our self-insurance liability contains uncertainty
since we must use judgment to estimate the ultimate cost that
will be incurred to settle reported claims and unreported claims
for incidents incurred but not reported as of the balance sheet
date. When estimating our self-insurance liability, we consider
anumber of factors, which include, but are not limited to,
historical claim experience, demographic factors, severity
factors and valuations provided by independent third party
actuaries. On a quarterly basis, we review our assumptions
with our independent third party actuaries to determine that
our self-insurance liability is adequate. We have not made
any material changes in the accounting methodology used to
establish our self-insurance liability during the past three years.
INVENTORY
Our inventory is stated at the lower of cost or market on a
first-in, first-out basis using the retail method of accounting
todetermine cost of sales and inventory in our stores, and
thecost method of accounting to determine inventory in our
distribution centers. Under the retail method, inventory is stated
atcost, which is determined by applying a cost-to-retail ratio
to the ending retail value of our inventory. Since the retail value
of our inventory is adjusted on a regular basis to reflect current
market conditions, our carrying value should approximate the
lower of cost or market. In addition, we reduce the value of
our ending inventory for estimated inventory losses that have
occurred during the interim period between physical inventory
counts. Physical inventory counts are taken on a regular basis
in each location to ensure that the amounts reflected in the
consolidated financial statements are properly stated.
The accounting for inventory contains uncertainty since we
must use judgment to estimate the inventory losses that have
occurred during the interim period between physical inventory
counts. When estimating these losses, we consider a number of
factors, which include but are not limited to, historical physical
inventory results on a location-by-location basis and current
inventory loss trends. We have not made any material changes
in the accounting methodology used to establish our inventory
loss reserves during the past three years.
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