CVS 1998 Annual Report Download - page 30

28
CVS Corporation
two
Business Combinations
Merger Transactions
On March 31, 1998, CVS completed a merger with Arbor
Drugs, Inc. (“Arbor”), pursuant to which 37.8 million shares
of CVS common stock were exchanged for all the outstanding
common stock of Arbor (the “CVS/Arbor Merger”). Each
outstanding share of Arbor common stock was exchanged for
0.6364 shares of CVS common stock. In addition, outstanding
Arbor stock options were converted at the same exchange
ratio into options to purchase 5.3 million shares of CVS
common stock.
On May 29, 1997, CVS completed a merger with Revco D.S.,
Inc. (“Revco”), pursuant to which 120.6 million shares of
CVS common stock were exchanged for all the outstanding
common stock of Revco (the “CVS/Revco Merger”). Each
outstanding share of Revco common stock was exchanged for
1.7684 shares of CVS common stock. In addition, outstanding
Revco stock options were converted at the same exchange
ratio into options to purchase 6.6 million shares of CVS
common stock.
The CVS/Arbor Merger and CVS/Revco Merger (collectively,
the “Mergers”) constituted tax-free reorganizations and have
been accounted for as pooling of interests under Accounting
Principles Board Opinion No. 16, “Accounting for Business
Combinations.” Accordingly, all prior period financial
statements presented have been restated to include the
combined results of operations, financial position and cash
flows of Arbor and Revco as if they had always been owned
by CVS.
Prior to the Mergers, Arbor’s fiscal year ended on July 31
and Revco’s fiscal year ended on the Saturday closest to May
31. These fiscal year-ends have been restated to a December
31 year-end to conform to CVS’ fiscal year-end. Arbor’s and
Revco’s cost of sales and inventories have been restated from
the last-in, first-out method to the first-in, first-out method
to conform to CVS’ accounting method for inventories. The
impact of the restatement was to increase earnings from
continuing operations by $0.5 million in 1998, $1.2 million
in 1997 and $15.5 million in 1996.
There were no material transactions between CVS, Arbor
and Revco prior to the Mergers. Certain reclassifications
have been made to Arbor’s and Revco’s historical stand-
alone financial statements to conform to CVS’ presentation.
Following are the results of operations for the separate
companies prior to the Mergers and the combined amounts
presented in the consolidated financial statements:
Three Months Ended Years Ended
March 28, March 29, December 31,
In millions 1998 1997 1997 1996
Net sales:
CVS $3,333.6 $1,515.0 $12,738.2 $ 5,528.1
Arbor 267.9 237.0 1,011.4 886.8
Revco — 1,645.8 — 5,416.7
$3,601.5 $3,397.8 $13,749.6 $11,831.6
Earnings from
continuing operations:
CVS $ 121.3 $ 58.5 $ 37.3 $ 239.6
Arbor 10.7 9.4 39.2 31.6
Revco — 24.2 — 101.2
$ 132.0 $ 92.1 $ 76.5 $ 372.4
Purchase Transactions
On December 23, 1996, the Company completed the cash
purchase of Big B, Inc. (“Big B”) by acquiring all the outstanding
shares of Big B common stock. The aggregate transaction value,
including the assumption of $49.3 million of Big B debt, was
$423.2 million. The Big B acquisition was accounted for as a
purchase business combination. The resulting excess of purchase
price over net assets acquired, $248.9 million, is being amortized
on a straight-line basis over 40 years. For financial reporting
purposes, Big B’s results of operations have been included in the
consolidated financial statements since November 16, 1996.
The Company also acquired other retail drugstore businesses
that were accounted for as purchase business combinations.
These acquisitions did not have a material effect on the consoli-
dated financial statements either individually or in the aggregate.
The results of operations of these companies have been
included in the consolidated financial statements since their
respective dates of acquisition.
Notes to Consolidated Financial Statements (continued)