CVS 2009 Annual Report Download - page 61

Indefinitely-lived intangible assets are tested for impairment by
comparing the estimated fair value of the asset to its carrying
value. The Company estimates the fair value of its indefinitely-
lived trademark using the relief from royalty method under
the income approach. As this method of estimating fair value
utilizes internal financial projections for determination of
future cash flows, the fair value methodology is considered to
use inputs classified as Level 3 in the fair value hierarchy. If
the carrying value of the asset exceeds its estimated fair value,
an impairment loss is recognized and the asset is written down
to its estimated fair value. During the third quarter of 2009, the
Company performed its annual impairment test of the indefi-
nitely-lived trademark and concluded there was no impairment
as of the testing date. The carrying amount of indefinitely-
lived assets was $6.4 billion as of December 31, 2009 and
2008. Intangible assets with finite useful lives are amortized
over their estimated useful lives.
The Company amortizes intangible assets with finite lives over
the estimated useful lives of the respective assets, which have
a weighted average useful life of 13.2 years. The weighted
average useful lives of the Company’s customer contracts and
relationships and covenants not to compete are 12.8 years.
The weighted average of the Company’s favorable leases and
other intangible assets are 15.3 years. Amortization expense
for intangible assets totaled $430 million, $405 million and
$344 million in 2009, 2008 and 2007, respectively. The
anticipated annual amortization expense for these intangible
assets is $418 million in 2010, $409 million in 2011, $390 million
in 2012, $367 million in 2013 and $335 million in 2014.
Note 3 Goodwill and Other Intangibles
Goodwill and other indefinitely-lived assets are not amortized,
but are subject to annual impairment reviews, or more frequent
reviews if events or circumstances indicate impairment may exist.
When evaluating goodwill for potential impairment, the
Company first compares the fair value of the reporting unit
to its carrying amount. The Company estimates the fair value
of its reporting units using a combination of a future dis-
counted cash flow valuation model and a comparable market
transaction model. As the Company utilizes internal financial
projections for the determination of future cash flows, the fair
value methodology is considered to use inputs classified as
Level 3 in the fair value hierarchy. 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 a reporting
unit’s goodwill with the carrying amount of its goodwill. If
the carrying amount of the goodwill exceeds the implied fair
value, an impairment loss is recognized in an amount equal
to the excess. During the third quarter of 2009, the Company
performed its required annual goodwill impairment tests.
The Company concluded there were no goodwill impairments
as of the testing date. The carrying amount of goodwill was
$25.7 billion and $25.5 billion as of December 31, 2009 and
2008, respectively. During 2009, goodwill increased primarily
due to the acquisition of Generation Health and the finaliza-
tion of the purchase price allocation in connection with the
Longs Acquisition.
The following table is a summary of the Company’s intangible assets as of December 31:
2009 2008
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
in millions Amount Amortization Amount Amount Amortization Amount
Trademarks (indefinitely-lived) $ 6,398 $ – $ 6,398 $ 6,398 $ – $ 6,398
Customer contracts and relationships and
covenants not to compete 4,828 (1,604) 3,224 4,749 (1,240) 3,509
Favorable leases and other 756 (251) 505 719 (180) 539
$ 11,982 $ (1,855) $ 10,127 $ 11,866 $ (1,420) $ 10,446
2009 Annual Report 57