CVS 1999 Annual Report Download - page 36

Notes to Consolidated Financial Statements
34
CVS Corporation
Pension Plans and Other Postretirement Benefits
The Company sponsors a noncontributory defined benefit
pension plan that covers certain full-time employees of Revco
who are not covered by collective bargaining agreements.
On September 20, 1997, the Company suspended future
benefit accruals under this plan. As a result of the plan’s
suspension, the Company realized a $6.0 million curtailment
gain in 1997. Benefits paid to retirees are based upon
age at retirement, years of credited service and average
compensation during the five-year period ending September
20, 1997. The plan is funded based on actuarial calculations
and applicable federal regulations.
Pursuant to various labor agreements, the Company is also
required to make contributions to certain union-administered
pension and health and welfare plans that totaled $8.4
million, $7.5 million and $7.6 million in fiscal 1999, 1998
and 1997, respectively. The Company may be liable for
its share of the plans’ unfunded liabilities if the plans are
terminated. The Company also has nonqualified supplemental
executive retirement plans in place for certain key employees
for whom it has purchased cost recovery variable life
insurance.
Defined Contribution Plans
The Company sponsors a Profit Sharing Plan and a
voluntary 401(k) Savings Plan that covers substantially
all employees who meet plan eligibility requirements. The
Company makes matching contributions consistent with
the provisions of the plan. The Company also maintains a
non-qualified, unfunded Deferred Compensation Plan for
certain key employees. This plan provides participants the
opportunity to defer portions of their compensation and
receive matching contributions that they would have
otherwise received under the 401(k) Savings Plan if not
for certain restrictions and limitations under the Internal
Revenue Code. The Company’s contributions under the
above defined contribution plans totaled $17.0 million,
$26.4 million and $24.1 million in fiscal 1999, 1998 and
1997, respectively. The Company also sponsors an
Employee Stock Ownership Plan. See Note 9 for further
information about this plan.
Other Postretirement Benefits
The Company provides postretirement healthcare and
life insurance benefits to retirees who meet eligibility
requirements. The Company’s funding policy is generally
to pay covered expenses as they are incurred.
1 2 3 4 5 6 7 89 10 11 12 13 14 15
The Company applies APB Opinion No. 25 to account for
its stock incentive plans. Accordingly, no compensation
cost has been recognized for stock options granted. Had
compensation cost been recognized based on the fair value
of stock options granted consistent with SFAS No. 123,
net earnings and net earnings per common share (“EPS”)
would approximate the pro forma amounts shown below:
The fair value of each stock option grant was estimated
using the Black-Scholes Option Pricing Model with the
following assumptions:
1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan provides for the
granting of up to 7,400,000 shares of common stock. The
plan, which covers substantially all employees, gives
employees the option to purchase common stock at the
end of each six-month offering period, at a purchase price
equal to 85% of the lower of the fair market value on the
first day or the last day of the offering period.
Employees pay for the shares ratably over each offering
period through payroll deductions. During 1999, options
for 210,833 shares were exercised at an average price of
$33.42.
Fiscal Year
In millions, except per share amounts 1999 1998 1997
Net earnings:
As reported $ 635.1 $ 384.5 $ 88.8
Pro forma 614.7 359.0 70.6
Basic EPS:
As reported $ 1.59 $ 0.96 $ 0.20
Pro forma 1.53 0.89 0.15
Diluted EPS:
As reported $ 1.55 $ 0.95 $ 0.19
Pro forma 1.50 0.88 0.15
Fiscal Year
1999 1998 1997
Dividend yield 0.58% 0.40% 0.70%
Expected volatility 25.86% 22.49% 22.77%
Risk-free interest rate 6.50% 5.75% 5.50%
Expected life 6.0 7.0 5.5