CVS 1999 Annual Report Download - page 30

Notes to Consolidated Financial Statements
28
CVS Corporation
Management’s decision to close Arbor’s Troy, Michigan
corporate headquarters was also considered to be an event
or change in circumstances as defined in SFAS No. 121.
Since management intended to dispose of these assets,
impairment was measured using the “Assets to Be Disposed
Of” provisions of SFAS No. 121. Since management intended
to discard the assets located in this facility, their entire net
book value was considered to be impaired.
Contract cancellation costs included $4.8 million for
estimated termination fees and/or penalties associated with
terminating various contracts that Arbor had in place prior
to the merger, which would not be used by the combined
company.
Other costs included $1.3 million for the estimated write-
off of Arbor’s Point-of-Sale software and $1.4 million for
travel and related expenses that would be incurred in
connection with closing Arbor’s corporate headquarters
and store facilities.
The above costs did not provide future benefit to the retained
stores or corporate facilities.
Following is a reconciliation of the beginning and ending liability balances as of the respective balance sheet dates:
Merger Employee Noncancelable Contract
Transaction Severance & Lease Duplicate Asset Cancellation
In millions Costs Benefits(1) Obligations(2) Facility Write-offs Costs Other Total
CVS/Arbor Charge $ 15.0 $ 27.1 $ 40.0 $ 16.5 $ 41.2 $ 4.8 $ 2.7 $147.3
Utilization -- Cash (15.9) (13.8) — (15.1) — (1.2) (3.4) (49.4)
Utilization -- Noncash — — — — (41.2) — — (41.2)
Transfer(3) 0.9 — — (1.4) — (0.2) 0.7 —
Balance at 12/26/98 — 13.3 40.0 — — 3.4 — 56.7
Utilization -- Cash — (3.0) (2.7) — — — — (5.7)
Balance at 01/1/00(4) $ — $ 10.3 $ 37.3 $ — $ — $ 3.4 $ — $ 51.0
(1) Employee severance extends through 2000. Employee benefits extend for a number of years to coincide with the payment of excess parachute payment excise taxes
and related income tax gross-ups.
(2) Noncancelable lease obligations extend through 2020.
(3) The transfers between the components of the plan were recorded in the same period that the changes in estimates were determined. These amounts are considered
to be immaterial.
(4) The Company believes that the reserve balances as of January 1, 2000, are adequate to cover the remaining liabilities associated with the CVS/Arbor Charge.
CVS/Revco Charge
In accordance with APB Opinion No. 16, EITF Issue 94-3
and SFAS No. 121, CVS recorded a $337.1 million charge
to operating expenses during the second quarter of 1997 for
direct and other merger-related costs pertaining to the
CVS/Revco merger transaction and certain restructuring
activities (the “CVS/Revco Charge”). The Company also
recorded a $75 million charge to cost of goods sold during
the second quarter of 1997 to reflect markdowns on
noncompatible Revco merchandise.
In millions
Merger transaction costs $ 35.0
Restructuring costs:
Employee severance and benefits 89.8
Exit costs:
Noncancelable lease obligations 67.0
Duplicate facility 50.2
Asset write-offs 82.2
Contract cancellation costs 7.4
Other 5.5
Total $337.1
Following is a summary of the significant components of
the CVS/Revco Charge: