CVS 1998 Annual Report Download - page 21

19
1998 Financial Report
Year 2000 Compliance Statement
The “Year 2000 Issue” relates to the inability of certain
computer hardware and software to properly recognize and
process date-sensitive information for the Year 2000 and
beyond. Without corrective measures, our computer
applications could fail and/or produce erroneous results.
To address this concern, we have a work plan in place to
identify the potential issues that could affect our business.
The following discussion will provide you with an update
on where we stand on this important matter.
Information Technology (“IT”) Systems ~ We have
completed the assessment phase for each of our critical
information technology systems. Our IT business systems
include point-of-sale, Rx2000 pharmacy, supply chain
management, financial accounting and other corporate
office systems. To date, we have modified or replaced
approximately 85% of our critical IT business systems. We
currently expect to modify or replace the remaining critical
business systems by the end of the second quarter of 1999
and complete our systems testing by the end of the third
quarter of 1999.
Non-IT Systems ~ We are currently in the process of
completing the assessment phase for each of our critical
non-IT business systems, including those with embedded
chip technology. Our non-IT business systems include
distribution center logistics, HVAC, energy management,
facility alarms and key entry systems. To date, we have
modified or replaced approximately 30% of our critical non-
IT business systems. We currently expect to modify or replace
the remaining critical non-IT business systems and complete
our systems testing by the end of the third quarter of 1999.
Business Partners ~ As part of our project work plan, we
have been communicating with our key business partners,
including our vendors, suppliers, financial institutions,
managed care organizations, pharmacy benefit managers,
third party insurance programs and governmental agencies
to determine the status of their Year 2000 compliance
programs. Although there can be no assurance that we will
not be adversely affected by the Year 2000 issues of our
business partners, we believe that ongoing communication
will continue to minimize our risk.
Potential Risks ~ The potential risks associated with
failing to remediate our Year 2000 issues include: temporary
disruptions in store operations; temporary disruptions in the
ordering, receiving and shipping of merchandise and in the
ordering and receiving of other goods and services;
temporary disruptions in the billing and collecting of
accounts receivable; temporary disruptions in services
provided by banks and other financial institutions;
temporary disruptions in communication services; and
temporary disruptions in utility services.
Incremental Cost ~ We currently estimate that the
incremental cost associated with completing our Year 2000
work plan will be approximately $10 million, about half of
which had been incurred through December 31, 1998. This
estimate could change as additional information becomes
available. The cost to resolve our Year 2000 issues will be
funded through our operating cash flows.
Contingency Plan ~ We are currently in the process of
developing a contingency plan for each area in our organiza-
tion that could be affected by the Year 2000 issue. Although
we currently anticipate minimal business disruption, the
failure of either the Company or one or more of our major
business partners to remediate critical Year 2000 issues could
have a materially adverse impact on our business, operations
and financial condition. Please read the “Cautionary
Statement Concerning Forward-Looking Statements”
section below.
Cautionary Statement Concerning
Forward-Looking Statements
We have made forward-looking statements in this Annual
Report that are subject to risks and uncertainties. For these
statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. We strongly
recommend that you become familiar with the specific risks
and uncertainties that we have outlined for you under the
caption “Cautionary Statement Concerning Forward-Looking
Statements” in our Annual Report on Form 10-K for the year
ended December 31, 1998.
Condition and Results of Operations (continued)