CVS 2013 Annual Report Download - page 71

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2013 Annual Report
4 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 an 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 2013, 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 $26.5 billion and $26.4 billion as of December 31, 2013 and 2012,
respectively (see Note 13 for a breakdown of goodwill by segment). During the year ended December 31, 2013,
goodwill increased $12 million in PSS and $135 million in RPS for a total increase of $147 million. The increase in
PSS was primarily due to an immaterial acquisition. The $135 million net increase in RPS was due to an immaterial
acquisition which increased goodwill by $160 million, which was partially offset by a decrease of $25 million related
to foreign currency translation adjustments.
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 2013, the
Company performed 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, 2013 and 2012.
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 13.0 years. The weighted average useful lives of the Company’s cus-
tomer contracts and relationships and covenants not to compete are 12.5 years. The weighted average lives of the
Company’s favorable leases and other intangible assets are 17.1 years. Amortization expense for intangible assets
totaled $494 million, $486 million and $452 million in 2013, 2012 and 2011, respectively. The anticipated annual
amortization expense for these intangible assets for the next five years is $457 million in 2014, $427 million in 2015,
$398 million in 2016, $375 million in 2017 and $357 million in 2018.
The following table is a summary of the Company’s intangible assets as of December 31:
2013 2012
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
5,840 (3,083) 2,757 5,745 (2,812) 2,933
Favorable leases and other
800 (426) 374 802 (380) 422
$ 13,038 $ (3,509) $ 9,529 $ 12,945 $ (3,192) $ 9,753