CVS 2007 Annual Report Download - page 49

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45 I 2007 Annual Report
Accounts Receivable
Accounts receivable are stated net of an allowance for
uncollectible accounts of $141.4 million and $73.4 million as
of December 29, 2007 and December 30, 2006, respectively.
The balance primarily includes amounts due from third party
providers (e.g., pharmacy benefit managers, insurance companies
and governmental agencies) and vendors as well as clients,
participants and manufacturers.
Fair Value of Financial Instruments
As of December 29, 2007, the Company’s financial instruments
include cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and short-term debt. Due to
the short-term nature of these instruments, the Company’s carrying
value approximates fair value. The carrying amount and estimated
fair value of long-term debt was $8.2 billion as of December 29,
2007. The carrying amount and estimated fair value of long-term
debt was $3.1 billion as of December 30, 2006. The fair value of
long-term debt was estimated based on rates currently offered to
the Company for debt with similar terms and maturities. The
Company had outstanding letters of credit, which guaranteed
foreign trade purchases, with a fair value of $5.7 million as of
December 29, 2007 and $6.8 million as of December 30, 2006.
There were no outstanding investments in derivative financial
instruments as of December 29, 2007 or December 30, 2006.
Inventories
Inventories are stated at the lower of cost or market on a first-in,
first-out basis using the retail method of accounting to determine
cost of sales and inventory in our retail pharmacy stores, average
cost to determine cost of sales and inventory in our mail service
and specialty pharmacies and the cost method of accounting
to determine inventory in our distribution centers. Independent
physical inventory counts are taken on a regular basis in each
store and distribution center location (other than six distribution
centers, which perform a continuous cycle count process to
validate the inventory balance on hand) 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 3 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:
Dec. 29, Dec. 30,
In millions 2007 2006
Land $ 586.4 $ 601.3
Building and improvements 896.0 801.9
Fixtures and equipment 5,178.1 4,347.4
Leasehold improvements 2,133.2 1,828.5
Capitalized software 243.9 219.1
Capital leases 181.7 229.3
9,219.3 8,027.5
Accumulated depreciation
and amortization (3,366.5) (2,693.9)
$ 5,852.8 $ 5,333.6
The Company capitalizes application development stage
costs for significant internally developed software projects.
These costs are amortized over the estimated useful lives of the
software, which generally range from 3 to 5 years. Unamortized
costs were $74.2 million as of December 29, 2007 and $75.5 mil-
lion as of December 30, 2006.
Goodwill
The Company accounts for goodwill and intangibles under
Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets.” As such, goodwill and
other indefinite-lived assets are not amortized, but are subject to
impairment reviews annually, or more frequently if necessary. See
Note 3 for further information on goodwill.
Intangible Assets
Purchased customer contracts and relationships are amortized
on a straight-line basis over their estimated useful lives of up to
20 years. Purchased customer lists are amortized on a straight-line
basis over their estimated useful lives of up to 10 years. Purchased
leases are amortized on a straight-line basis over the remaining life
of the lease. See Note 3 for further information on intangible assets.