CVS 1999 Annual Report Download - page 32

Notes to Consolidated Financial Statements
30
CVS Corporation
during the shutdown period, impairment was measured
using the “Assets to Be Held and Used” provisions of SFAS
No. 121. The analysis was prepared at the individual store
level, which is the lowest level at which individual cash
flows can be identified. The analysis first compared the
carrying amount of the store’s assets to the store’s estimated
future cash flows (undiscounted and without interest charges)
through the anticipated closing date. If the estimated future
cash flows used in this analysis were less than the carrying
amount of the store’s assets, an impairment loss calculation
was prepared. The impairment loss calculation compared the
carrying value of the store’s assets to the store’s estimated
future cash flows (discounted and with interest charges).
Management’s decision to close Revco’s 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.
The impairment loss of $3.9 million for the facility that
Revco owned was calculated by subtracting the carrying
value of the facility from the estimated fair value less cost
to sell. Since management intended to discard the remaining
assets located in these facilities, their entire net book value
was considered to be impaired.
Contract cancellation costs included $7.4 million for estimated
termination fees and/or penalties associated with terminating
various contracts that Revco had in place prior to the merger,
which would not be used by the combined company.
Other costs included $3.5 million for estimated travel and
related expenses that would be incurred in connection
with closing Revco’s corporate headquarters and $2.0
million for other miscellaneous charges associated with
closing Revco’s corporate headquarters.
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/Revco Charge $ 35.0 $ 89.8 $ 67.0 $ 50.2 $ 82.2 $ 7.4 $ 5.5 $ 337.1
Utilization -- Cash (32.1) (37.4) (0.9) (37.6) — (5.1) (5.5) (118.6)
Utilization -- Noncash — — — — (82.2) — — (82.2)
Balance at 12/27/97 2.9 52.4 66.1 12.6 — 2.3 — 136.3
Utilization -- Cash (0.3) (40.0) (17.0) (11.8) — (2.3) (3.4) (74.8)
Transfer(3) (2.6) — — (0.8) — — 3.4 —
Balance at 12/26/98 — 12.4 49.1 — — — — 61.5
Utilization -- Cash — (3.4) (9.9) — — — — (13.3)
Balance at 01/1/00(4) $ — $ 9.0 $ 39.2 $ — $ — $ — $ — $ 48.2
(1) Employee severance extended through 1999. Employee benefits extend for a number of years to coincide with the payment of retirement benefits and excess
parachute payment excise taxes and related income tax gross-ups.
(2) Noncancelable lease obligations extend through 2017.
(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/Revco Charge.
Big B Charge
In accordance with EITF Issue 94-3 and SFAS No. 121, the
Company recorded a $31.0 million charge to operating
expenses during the first quarter of 1997 for certain costs
associated with the restructuring of Big B, Inc. (the “Big B
Charge”), which the Company acquired in 1996. This
charge included accrued liabilities related to store closings
and duplicate corporate facilities, such as the cancellation
of lease agreements and the write-down of unutilized fixed
assets. Asset write-offs included in this charge totaled $5.1
million. The balance of the charge, $25.9 million, will
require cash outlays of which $15.9 million and $10.0
million had been incurred as of January 1, 2000, and
December 26, 1998, respectively. The remaining cash
outlays primarily include noncancelable lease commitments,
which extend through 2012. The above costs did not
provide future benefit to the retained stores or corporate
facilities.