CVS 1998 Annual Report Download - page 32

30
CVS Corporation
four
Strategic Restructuring Program
& Discontinued Operations
In November 1997, the Company completed the final phase
of its comprehensive strategic restructuring program, first
announced in October 1995 and subsequently refined in May
1996 and June 1997. The strategic restructuring program
included: (i) the sale of Marshalls, Kay-Bee Toys, Wilsons,
This End Up and Bob’s Stores, (ii) the spin-off of Footstar,
Inc., which included Meldisco, Footaction and Thom McAn
(the “Footstar Distribution”), (iii) the initial and secondary
public offerings of Linens ‘n Things and (iv) the elimination
of certain corporate overhead costs.
The strategic restructuring program was completed without
significant changes to the Board approved plan. As part of
completing this program, the Company recorded, as a
component of discontinued operations, an after-tax charge
of $20.7 million during the second quarter of 1997 and $148.1
million during the second quarter of 1996 to finalize original
liability estimates. The Company believes that the remaining
pre-tax reserve balance of $84.7 million at December 31,
1998 is adequate to cover the remaining liabilities associated
with this program. Following is a summary of the strategic
restructuring reserve:
Total Utilized
In millions Reserve to Date Transfer Balance
Loss on disposal $ 721.8 $ (710.6) $38.8 $50.0
Lease obligations 187.4 (124.6) (32.8) 30.0
Severance 58.6 (47.9) (6.0) 4.7
Other 174.2 (174.2) — —
$1,142.0 $(1,057.3) $ — $84.7
Following is a summary of discontinued operations by
reporting segment for the years ended December 31:
In millions 1997 1996
Net sales:
Footwear $ — $1,391.1
Apparel 348.3 526.4
Toys and Home Furnishings — 900.3
$ 348.3 $2,817.8
Operating (loss):
Footwear $ — $ (12.4)
Apparel — (171.3)
Toys and Home Furnishings — (49.7)
$ — $ (233.4)
As of December 31, 1998 and 1997, there were no assets or
liabilities of the discontinued operations reflected in the
accompanying consolidated balance sheets.
five
Borrowings and Credit
Agreements
Following is a summary of the Company’s borrowings at
December 31:
In millions 1998 1997
Commercial paper $ 736.6 $450.0
ESOP note payable(1) 270.7 292.1
Uncommitted lines of credit 34.5 16.4
9.125% senior notes —19.2
Mortgage notes payable 16.1 17.1
Capital lease obligations and other 3.5 3.9
1,061.4 798.7
Less:
Short-term borrowings (771.1) (466.4)
Current portion of long-term debt (14.6) (41.9)
$ 275.7 $290.4
(1) See Note 9 for further information about the Company’s ESOP Plan.
The Company’s commercial paper program is supported by a
$670 million, five-year unsecured revolving credit facility,
which expires on May 30, 2002 and a $460 million, 364-day
unsecured revolving credit facility, which expires on June 26,
1999 (collectively, the “Credit Facilities”). The Credit Facilities
require the Company to pay a quarterly facility fee of 0.07%,
regardless of usage. The Company can also obtain up to $35.0
million of short-term financing through various uncommitted
lines of credit. The weighted average interest rate for short-term
borrowings was 5.7% as of December 31, 1998 and 1997.
The Company was not obligated under any formal or informal
compensating balance agreements.
During the second quarter of 1997, the Company extinguished
$865.7 million of the debt it absorbed as part of the CVS/Revco
Merger using cash on hand and commercial paper borrowings. As
a result, the Company recorded an extraordinary loss, net of
income taxes, of $17.1 million, which consisted of early
retirement premiums and the write-off of unamortized deferred
financing costs. On January 15, 1998, the Company redeemed the
remaining $19.2 million of 9.125% senior notes.
At December 31, 1998, the aggregate long-term debt maturing
during the next five years is as follows: $14.6 million in 1999,
$17.3 million in 2000, $21.6 million in 2001, $26.5 million in
2002, $32.3 million in 2003, $178.0 million in 2004 and thereafter.
Interest paid was approximately $70.7 million in 1998, $58.4
million in 1997 and $79.8 million in 1996.
Notes to Consolidated Financial Statements (continued)