CVS 2011 Annual Report Download - page 62

Notes to Consolidated Financial Statements
CVS CAREMARK 60 2011 ANNUAL REPORT
Indefinitely-lived intangible assets are tested for impair-
ment 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 roy-
alty 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 methodol-
ogy 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 2011, the Company performed its annual
impairment test of the indefinitely-lived trademark and con-
cluded there was no impairment as of the testing date.
The carrying amount of its indefinitely-lived trademark was
$6.4 billion as of December 31, 2011 and 2010.
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 13.3 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 lives of the Company’s
favorable leases and other intangible assets are 16.4 years.
Amortization expense for intangible assets totaled $452 mil-
lion, $427 million and $430 million in 2011, 2010 and 2009,
respectively. The anticipated annual amortization expense for
these intangible assets for the next five years is $456 million
in 2012, $433 million in 2013, $400 million in 2014,
$372 million in 2015 and $344 million in 2016.
4 GOODWILL AND OTHER INTANGIBLES
Goodwill and other indefinitely-lived assets are not amortized,
but are subject to annual impairment reviews, or more fre-
quent reviews if events or circumstances indicate impairment
may exist.
When evaluating goodwill for potential impairment, the
Company first compares the fair value of its two report-
ing units, the PSS and RPS, to their respective carrying
amounts. The Company estimates the fair value of its report-
ing units using a combination of a future discounted cash
flow valuation model and a comparable market transaction
model. As the Company utilizes internal financial projec-
tions 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 impair-
ment loss calculation is prepared. The impairment loss cal-
culation compares the implied fair value of a reporting unit’s
goodwill with the carrying amount of its goodwill. If the car-
rying 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 2011, the Company per-
formed 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
$26.5 billion and $25.7 billion as of December 31, 2011 and
2010, respectively (see Note 14 for a breakdown of Goodwill
by segment). The $0.8 billion increase in goodwill in 2011
was primarily due to an increase of approximately $1.0 bil-
lion related to the acquisition of the UAM Medicare Part D
Business, partially offset by the derecognition of approximately
$0.2 billion of goodwill associated with the sale of TheraCom.
These changes to goodwill affected the PSS.
The following table is a summary of the Company’s intangible assets as of December 31:
2011 2010
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
in millions Amount Amortization Amount Amount Amortization Amount
Trademark (indefinitely-lived) $ 6,398 $ — $ 6,398 $ 6,398 $ — $ 6,398
Customer contracts and relationships
and covenants not to compete 5,427 (2,386) 3,041 4,903 (1,982) 2,921
Favorable leases and other 769 (339) 430 762 (297) 465
$ 12,594 $ (2,725) $ 9,869 $ 12,063 $ (2,279) $ 9,784
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