CVS 2001 Annual Report Download - page 17

15
2001 Annual Report
We finance a po rtio n of o ur new sto re development pro gram
through sale- leaseback transactio ns. Pro c eeds from sale-leaseback
transactio ns to taled $323.3 millio n in 2001. This co mpares to
$299.3 millio n in 2000 and $229.2 millio n in 1999. Typically, the
pro perties are so ld at net boo k value and the resulting leases
qualify and are acc o unted fo r as o perating leases. During 2001,
we also c o mpleted a sale-leaseback transactio n invo lving five o f
o ur distributio n centers. The distribution centers were so ld at fair
market value resulting in a $35.5 millio n gain, which was
deferred and is being amo rtized to o ffset rent expense o ver the
life of the new o perating leases. We also have an o perating lease
agreement to taling $200 millio n, under which the lesso r
purchases the pro perties, pays for the co nstructio n co sts and we
subsequently lease the sto re upo n c o mpletio n of c o nstructio n.
During 2001, we leased 26 sto res c o nstructed under this
agreement. We do no t consider the use o f this agreement to be a
critical co mpo nent o f o ur future financing and/ o r real estate
develo pment strategies.
The fo llo wing table summarizes o ur future cash o utflo ws
resulting from financial co ntracts and co mmitments as o f
December 29, 2001:
Crit ical Accounting Policies
The preparatio n of o ur financial statements requires management
to make estimates and judgments that affect the repo rted
amo unts of assets, liabilities, revenues, expenses and related
disclo sures of co ntingent assets and liabilities. We base o ur
estimates o n historical experienc e and o n o ther assumptio ns that
we believe to be relevant under the circumstances, the results o f
which fo rm the basis fo r making judgments abo ut carrying values
of assets and liabilities that are no t readily apparent fro m o ther
so urces. Actual results co uld differ fro m these estimates under
different assumptio ns and/ or conditio ns. Fo r a detailed discussio n
of o ur critical acco unting po licies and related estimates and
judg ments, see No te 1 to the co nso lidated financial statements.
Recent Account ing Pronouncement s
In June 2001, SFAS No . 141, “Business Co mbinatio ns” was issued.
SFAS No . 141, which is effective fo r acquisitio ns initiated after
June 30, 2001, pro hibits the use o f the po o ling-o f-interests
metho d of ac c o unting fo r business co mbinatio ns and amends the
acco unting and financial repo rting requirements fo r business
co mbinatio ns.
In June 2001, SFAS No . 142, “Go o dwill and Other Intangible
Assets” was issued. SFAS No. 142, addresses financ ial acco unting
and repo rting fo r acquired go o dwill and o ther intangible assets.
Amo ng o ther things, SFAS No . 142 requires that go o dwill no
lo nger be amo rtized, but rather tested annually for impairment.
This statement is effective fo r fiscal years beginning after
December 15, 2001. Acco rdingly, we will ado pt SFAS No . 142
effective fiscal 2002 and are evaluating the effect such ado ption
may have o n o ur co nso lidated results o f o peratio ns and financial
po sitio n. Amortizatio n expense related to go o dwill was $31.4
millio n in 2001 and $33.7 million in 2000.
Also in June 2001, SFAS No . 143, “Acc o unting fo r Asset
Retirement Obligatio ns” was issued. SFAS No. 143 applies to legal
o bligatio ns asso ciated with the retirement o f certain tang ible
lo ng- lived assets. This statement is effec tive fo r fiscal years
beginning after June 15, 2002. Acco rdingly, we will ado pt SFAS
No . 143 effective fiscal 2003 and do no t expect that the
ado ptio n will have a material impact o n o ur co nso lidated results
of o perations o r financial po sitio n.
In August 2001, SFAS No . 144, “Acco unting fo r the Impairment o r
Dispo sal of Lo ng-Lived Assets” was issued. This statement
addresses financial acco unting and repo rting fo r the impairment
o r dispo sal of lo ng- lived assets. SFAS No . 144 is effective fo r
fiscal years beginning after December 15, 2001. Acco rding ly, we
will ado pt SFAS No . 144 effective fiscal 2002 and do no t expect
that the ado ption will have a material impact o n o ur co nso lidated
results of operatio ns o r financial po sition.
Cautionary St at ement Concerning Forward-
Looking Statement s
Certain written and o ral statements made by CVS Co rpo ratio n and
its subsidiaries or with the appro val o f an autho rized exec utive
officer of the Co mpany may co nstitute “fo rward- lo o king
statements” as defined under the Private Securities Litig atio n
Refo rm Act of 1995. Wo rds or phrases such as “sho uld result,”
“are expected to , ” “we anticipate,” “we estimate,” “we pro ject,”
“we believe” o r similar expressio ns are intended to identify
fo rward- lo o king statements. These statements are subject to
certain risks and uncertainties that co uld cause actual results to
differ materially fro m o ur histo rical experience and present
expec tatio ns o r pro jectio ns. These risks and uncertainties inc lude,
but are no t limited to, general eco nomic co nditio ns; the impact
of co mpetitio n; benefits o btained fro m the restructuring and
custo mer reactivatio n program; co nsumer preferences and
spending patterns; co st co ntainment effo rts by third party payers;
the ability to attract, train and retain highly-qualified asso ciates;
co nditio ns affecting the availability, acquisitio n and development
of real estate; and regulato ry and litigatio n matters. Cautio n
sho uld be taken no t to place undue reliance o n any such fo rward-
lo o king statements, since suc h statements speak o nly as of the
date of the making of such statements. Additional informatio n
co ncerning these risks and uncertainties is co ntained in o ur
filings with the Securities and Exchange Co mmissio n, including
o ur Annual Repo rt on Fo rm 10-K fo r the fiscal year ended
December 29, 2001.
Financial Condition and Results of Operation
Payme nts Due by Perio d
Within 2- 3 4- 5 After 5
In millions To tal 1 Year Years Years Years
Lease o bligatio ns( 1 ) $8,832.6 $756.6 $1,384.8 $1,183.0 $5,508.2
Lo ng-term debt 836.8 26.4 355.6 362.6 92.2
Purchase co mmitme nts 269.0 38.4 76.8 76.8 77.0
Severance ( 1 ) 17.4 17.4 ———
$9,955.8 $838.8 $1,817.2 $1,622.4 $5,677.4
( 1) The remaining cash payments asso ciated with the Restructuring Charge inc lude $227.4
millio n of lease o bligatio ns and $17.4 millio n of severanc e.