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CVS CAREMARK 2012 ANNUAL REPORT
66
Notes to Consolidated Financial Statements
5 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 its two reporting units,
the PSS and RPS, to their respective carrying amounts. The Company estimates the fair value of its reporting units using
a combination of a future discounted cash flow valuation model and a comparable market transaction model. 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 2012, 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
$26.4 billion and $26.5 billion as of December 31, 2012 and 2011, respectively (see Note 14 for a breakdown of Goodwill
by segment). The $63 million decrease in goodwill in 2012 was due to the finalization of the assessment of the fair value
of assets acquired and liabilities assumed in the 2011 acquisition of the UAM Medicare Part D Business which decreased
goodwill by $44 million, the realization of tax benefits associated with replacement stock options issued in a 2007 acquisi-
tion which decreased goodwill by $11 million, certain balance sheet adjustments to land and close store reserves related to
acquisitions in previous years which decreased goodwill by $52 million, partially offset by a $44 million increase in goodwill
associated with two immaterial acquisitions in 2012. These changes to goodwill affected both the PSS and RPS.
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. 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 2012, the Company per-
formed its annual impairment test of the indefinitely-lived trademark and concluded 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, 2012 and 2011.
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 13.4 years. The weighted average useful lives of the Company’s customer contracts
and relationships and covenants not to compete are 12.9 years. The weighted average lives of the Company’s favorable
leases and other intangible assets are 17.3 years. Amortization expense for intangible assets totaled $486 million, $452
million and $427 million in 2012, 2011 and 2010, respectively. The anticipated annual amortization expense for these
intangible assets for the next five years is $454 million in 2013, $420 million in 2014, $392 million in 2015, $364 million
in 2016 and $341 million in 2017.
The following table is a summary of the Company’s intangible assets as of December 31:
2012 2011
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 5,745 (2,812) 2,933 5,427 (2,386) 3,041
Favorable leases and other 802 (380) 422 769 (339) 430
$ 12,945 $ (3,192) $ 9,753 $ 12,594 $ (2,725) $ 9,869
5