CVS 2000 Annual Report Download - page 38

Notes to Consolidated Financial Statements
36
CVS Corporation
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 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.
Worker Adjustment and Retraining Act (the “WARN Act”), $6.6
million for the estimated cost of payroll and benefits that would
be incurred in connection with shutdown activities, $1.5 million
for the estimated cost of temporary labor that would be incurred
in connection with shutdown activities and $6.6 million for the
estimated occupancy-related costs that would be incurred in
connection with closing the duplicate corporate headquarters
facility.
Asset write-offs included $38.2 million for estimated fixed asset
write-offs and $3.0 million for estimated intangible asset write-
offs.The Company allocates goodwill to individual stores based
on historical store contribution, which approximates store cash
flow. Other intangibles (i.e., favorable lease interests and
prescription files) are typically store specific and, therefore, are
directly assigned to stores.The asset write-offs relate to the 55
store locations discussed above and the Troy, Michigan corporate
headquarters. Management’s decision to close the store locations
was considered to be an event or change in circumstances as
defined in SFAS No. 121. Since management intended to use
these locations on a short-term basis 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
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) (16.8) (2.7) (15.1) — (1.2) (3.4) (55.1)
Utilization -- Noncash — — — — (41.2) — — (41.2)
Transfer(3) 0.9 — — (1.4) — (0.2) 0.7 —
Balance at 01/01/00 — 10.3 37.3 — — 3.4 — 51.0
Utilization -- Cash — (0.9) (3.4) — — — — (4.3)
Balance at 12/30/00(4) $ — $ 9.4 $ 33.9 $ — $ — $ 3.4 $ — $ 46.7
(1) 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 December 30, 2000, are adequate to cover the remaining liabilities associated with the CVS/Arbor Charge.
Other Business Combinations
The Company also acquired other businesses that were accounted for as purchase business combinations and immaterial pooling of
interests.These acquisitions did not have a material effect on the Company’s consolidated financial statements either individually or in
the aggregate.The results of operations of these businesses have been included in the consolidated financial statements since their
respective dates of acquisition.