CVS 2011 Annual Report Download - page 56

Notes to Consolidated Financial Statements
CVS CAREMARK 54 2011 ANNUAL REPORT
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 fix-
tures, equipment and internally developed software. 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 depre-
ciated. Application development stage costs for significant
internally developed software projects are capitalized
and depreciated.
Impairment of long-lived assets – The Company groups
and evaluates fixed and finite-lived intangible assets, exclud-
ing goodwill, for impairment at the lowest level at which indi-
vidual cash flows can be identified. When evaluating assets
for potential impairment, the Company first compares the
carrying amount of the asset group to the estimated future
cash flows associated with the asset group (undiscounted
and without interest charges). If the estimated future cash
flows used in this analysis are less than the carrying amount
of the asset group, an impairment loss calculation is pre-
pared. The impairment loss calculation compares the carry-
ing amount of the asset group to the asset group’s estimated
future cash flows (discounted and with interest charges).
If required, an impairment loss is recorded for the portion
of the asset group’s carrying value that exceeds the asset
group’s estimated future cash flows (discounted and with
interest charges).
Inventories – Inventories are stated at the lower of cost or
market on a first-in, first-out basis using the retail inventory
method in the retail pharmacy stores, the weighted average
cost method in the mail service and specialty pharmacies, and
the cost method on a first-in, first-out basis in the distribution
centers. Physical inventory counts are taken on a regular basis
in each store and a continuous cycle count process is the pri-
mary procedure used to validate the inventory balances on
hand in each distribution center and mail facility to ensure that
the amounts reflected in the accompanying consolidated finan-
cial 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.
The gross amount of property and equipment under capital
leases was $211 million and $191 million as of December 31,
2011 and 2010, respectively.
Goodwill – Goodwill and other indefinite-lived assets are not
amortized, but are subject to impairment reviews annually, or
more frequently if necessary. See Note 4 for additional infor-
mation on goodwill.
Intangible assets – Purchased customer contracts and
relationships are amortized on a straight-line basis over their
estimated useful lives between 10 and 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 remain-
ing life of the lease. See Note 4 for additional information
about intangible assets.
The following are the components of property and equipment at December 31:
in millions 2011 2010
Land $ 1,295 $ 1,247
Building and improvements 2,404 2,265
Fixtures and equipment 7,582 7,148
Leasehold improvements 3,021 2,866
Software 1,098 757
15,400 14,283
Accumulated depreciation and amortization (6,933) (5,961)
$ 8,467 $ 8,322
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