CVS 2012 Annual Report Download - page 47

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CVS CAREMARK 2012 ANNUAL REPORT
45
The carrying value of goodwill and other intangible assets covered by this critical accounting policy was $26.4 billion and
$9.8 billion as of December 31, 2012, respectively. We did not record any impairment losses related to goodwill or other
intangible assets during 2012, 2011 or 2010. During the third quarter of 2012, we performed our required annual impair-
ment tests of goodwill and indefinitely-lived trademarks. The results of the impairment tests concluded that there was no
impairment of goodwill or trademarks. The goodwill impairment test resulted in the fair value of our Pharmacy Services and
Retail Pharmacy reporting units exceeding their carrying values by a significant margin. The carrying value of goodwill as of
December 31, 2012, in our Pharmacy Services and Retail Pharmacy reporting units was $19.6 billion and $6.7 billion,
respectively.
Although we believe we have sufficient current and historical information available to us to test for impairment, it is possible
that actual results could differ from the estimates used in our impairment tests.
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 when a leased store is closed. When a leased store is closed, we
record a liability for the estimated present value of the remaining obligation under the noncancelable 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 $339 million as of December 31, 2012.
This amount is net of $209 million of estimated sublease income that is subject to the uncertainties discussed previously.
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฀previously,฀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 $21 million as of December 31, 2012.
We have not made any material changes in the reserve methodology 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 other standard insurance industry