CVS 1998 Annual Report Download - page 33

1998 Financial Report
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1997 Incentive Compensation Plan
The 1997 Incentive Compensation Plan (the “1997 ICP”),
superseded the 1990 Omnibus Stock Incentive Plan, the
1987 Stock Option Plan and the 1973 Stock Option Plan
(collectively, the “Preexisting Plans”). Upon approval of the
1997 ICP, authority to make future grants under the
Preexisting Plans was terminated, although previously
granted awards remain outstanding in accordance with their
terms and the terms of the Preexisting Plans.
As of December 31, 1998, the 1997 ICP provided for the
granting of up to 23,321,821 shares of common stock in the
form of stock options, stock appreciation rights (“SARs”),
restricted shares, deferred shares and performance-based
awards to selected officers, employees and directors of the
Company. All grants under the 1997 ICP are awarded at fair
market value on the date of grant. The right to exercise or
receive these awards generally commences between one and
five years from the date of the grant and expires not more
than ten years after the date of the grant, provided that the
holder continues to be employed by the Company. As of
December 31, 1998, there were 19,730,690 shares available
for grant under the 1997 ICP.
Restricted shares issued under the 1997 ICP may not exceed
3.6 million shares. In 1998, 1997 and 1996, 155,400, 44,610
and 633,100 shares of restricted stock were granted at a
weighted average grant date fair value of $37.80, $23.02 and
$13.14, respectively. Participants are entitled to vote and
receive dividends on their restricted shares, although they are
subject to certain transfer restrictions. Performance-based
awards, which are subject to the achievement of certain
business performance goals, totaled 56,346 at a weighted
average grant date fair value of $36.70 in 1998. No awards
were granted in 1997 and 1996. Compensation cost, which is
based on the fair value at the date of grant, is recognized over
the restricted or performance period. This cost totaled $3.1
million in 1998, $3.5 million in 1997 and $3.9 million in
1996.
The 1996 Directors Stock Plan
The 1996 Directors Stock Plan (the “1996 DSP”), provides
for the granting of up to 346,460 shares of common stock to
the Company’s non-employee directors (the “Eligible
Directors”). The 1996 DSP allows the Eligible Directors to
elect to receive shares of common stock in lieu of cash
compensation. Eligible Directors may also elect to defer
compensation payable in common stock until their service as
a director concludes. The 1996 DSP replaced the Company’s
1989 Directors Stock Option Plan. As of December 31,
1998, there were 263,554 shares available for grant under the
1996 DSP.
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Leases
The Company and its subsidiaries lease retail stores,
warehouse facilities and office facilities under noncancelable
operating leases over periods ranging from 5 to 20 years, and
generally have options to renew such terms over periods
ranging from 5 to 15 years.
Following is a summary of the Company’s net rental expense
for operating leases for the years ended December 31:
In millions 1998 1997 1996
Minimum rentals $459.1 $409.6 $337.4
Contingent rentals 60.3 60.2 73.6
519.4 469.8 411.0
Less sublease income (14.0) (9.5) (12.8)
$505.4 $460.3 $398.2
Following is a summary of the future minimum lease
payments under capital and operating leases, excluding
lease obligations for closed stores, at December 31, 1998:
Capital Operating
In millions Leases Leases
1999 $0.4 $ 402.6
2000 0.4 381.1
2001 0.4 348.3
2002 0.2 323.3
2003 0.2 297.7
Thereafter 1.3 2,485.7
2.9 $ 4,238.7
Less imputed interest (1.4)
Present value of capital
lease obligations $1.5
As of December 31, 1998, the Company had the following
stock incentive plans (including the pre-merger plans of
Arbor and Revco). Effective with the Mergers, outstanding
Arbor and Revco stock options were exchanged for options to
purchase CVS common stock.
Stock Incentive Plans