CVS 2007 Annual Report Download - page 37

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33 I 2007 Annual Report
The carrying value of goodwill and intangible assets covered
by this critical accounting policy was $34.4 billion as of
December 29, 2007. We did not record any impairment losses
related to goodwill or intangible assets during 2007, 2006
or 2005. Although we believe we have sufficient current and
historical information available to us to test for impairment, it
is possible that actual cash flows could differ from the estimated
cash flows used in our impairment tests. Due to the nature
of the uncertainties discussed above, we cannot determine a
reasonably likely change.
We have not made any material changes in the methodologies
utilized to test the carrying values of goodwill and intangible
assets for impairment 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,” subsequent to its adoption in 2003. 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 initial calculation and subsequent evaluations of our closed store
lease liability contain uncertainty since we must use judgment to
estimate the timing and duration of future vacancy periods, the
amount and timing of future 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.
Our total closed store lease liability covered by this critical
accounting policy was $441.2 million as of December 29, 2007.
This amount is net of $263.0 million of estimated sublease
income that is subject to the uncertainties discussed above.
Although we believe we have sufficient current and historical
information available to us to record reasonable estimates for
sublease income, it is possible that actual results could differ.
In order to help you assess the risk, if any, associated with
the uncertainties discussed above, a ten percent (10%) pre-tax
change in our estimated sublease income, which we believe
is a reasonably likely change, would increase or decrease our
total closed store lease liability by about $26.3 million as of
December 29, 2007.
We have not made any material changes in the reserve method-
ology used to record closed store lease reserves during the past
three years.
Self-Insurance Liabilities
We are self-insured for certain losses related to general liability,
workers’ compensation and auto liability, although we maintain
stop loss coverage with third party insurers to limit our total
liability exposure. We are also self-insured for certain losses
related to health and medical liabilities.
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
a number 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 if our self-
insurance liability is adequate as it relates to our general liability,
workers’ compensation and auto liability. Similar reviews are
conducted semi-annually to determine that our self insurance
liability is adequate for our health and medical liability.
Our total self-insurance liability covered by this critical account-
ing policy was $328.6 million as of December 29, 2007. Although
we believe we have sufficient current and historical information
available to us to record reasonable estimates for our self-insurance
liability, it is possible that actual results could differ. In order to help
you assess the risk, if any, associated with the uncertainties discussed
above, a ten percent (10%) pre-tax change in our estimate for
our self-insurance liability, which we believe is a reasonably likely
change, would increase or decrease our self-insurance liability by
about $32.9 million as of December 29, 2007.