CVS 2012 Annual Report Download - page 60

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CVS CAREMARK 2012 ANNUAL REPORT
58
Notes to Consolidated Financial Statements
ACCOUNTS RECEIVABLE –
Accounts receivable are stated net of an allowance for doubtful accounts. The accounts
receivable balance primarily includes trade amounts due from third party providers (e.g., pharmacy benefit managers,
insurance companies and governmental agencies), clients and members, as well as vendors and manufacturers.
The activity in the allowance for doubtful trade accounts receivable is as follows:
Year Ended December 31,
In millions
2012 2011 2010
Beginning balance $ 189 $ 182 $ 224
Additions charged to bad debt expense 149 129 73
Write-offs charged to allowance (95) (122) (115)
Ending balance $ 243 $ 189 $ 182
INVENTORIES –
Prior to 2012, inventories were 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. Effective January 1, 2012, the
Company changed its methods of accounting for prescription drug inventories in the RPS to the weighted average cost
method. See Note 2 for additional information regarding the accounting change. Physical inventory counts are taken on a
regular basis in each store and a continuous cycle count process is the primary 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 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, 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 depreciated. Application development stage costs for significant internally developed software
projects are capitalized and depreciated.
The following are the components of property and equipment at December 31:
In millions 2012 2011
Land $ 1,429 $ 1,295
Building and improvements 2,614 2,404
Fixtures and equipment 7,928 7,582
Leasehold improvements
3,105 3,021
Software
1,230 1,098
16,306 15,400
Accumulated depreciation and amortization (7,674) (6,933)
$ 8,632 $ 8,467