CVS 2001 Annual Report Download - page 24

CVS Corporation
22
Diluted earnings per co mmo n share is co mputed by dividing: ( i)
net earnings, after acco unting fo r the difference between the
dividends o n the ESOP preferenc e sto ck and co mmo n stoc k and
after making adjustments fo r the incentive co mpensatio n plans by
( ii) Basic Shares plus the additio nal shares that wo uld be issued
assuming that all dilutive stoc k o ptio ns are exercised and the
ESOP preference sto ck is co nverted into c o mmo n stoc k.
New Account ing Pronouncement s ~ In June 2001, SFAS No.
141, “Business Co mbinatio ns” was issued. SFAS No . 141, which is
effective for acquisitio ns initiated after June 30, 2001, pro hibits
the use o f the po o ling- o f-interests metho d o f acc 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, the Co mpany will ado pt SFAS
No . 142 effective fiscal 2002 and is evaluating the effec t such
ado ptio n may have o n its co nso lidated results o f o peratio ns and
financial po sitio n. Amo rtizatio n expense related to goo 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, the Co mpany will
ado pt SFAS No . 143 effective fiscal 2003 and do es no t expect
that the ado ption will have a material impact o n its co nso lidated
results of operatio ns o r financial po sition.
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, the
Co mpany will ado pt SFAS No . 144 effec tive fisc al 2002 and do es
not expect that the ado ptio n will have a material impact o n its
co nsolidated results of operatio ns o r financial po sitio n.
Restructuring & Asset I mpairment
Charge
During the fo urth quarter of 2001, management appro ved an
Actio n Plan, which resulted fro m a co mprehensive business review
designed to streamline o peratio ns and enhance operating
efficiencies.
Fo llo wing is a summary o f the spec ific initiatives co ntained in
the Actio n Plan:
1. 229 CVS/ pharmacy and CVS Pro Care sto re lo catio ns ( the
“Sto re s”) wo uld be c lo sed by no later than March 2002. Since
these lo catio ns were leased facilities, management planned to
either return the premises to the respective landlo rds at the
co nclusio n of the current lease term o r negotiate an early
termination of the co ntractual obligatio ns. As o f March 2002,
all of the Sto res had been closed.
2. The Henderso n, No rth Caro lina distributio n c enter ( the “D.C.”)
would be clo sed and its o peratio ns wo uld be transferred to the
Co mpany’s remaining distributio n centers by no later than May
2002. Since this loc atio n was o wned, management planned to
sell the property upo n clo sure. As o f March 2002, the D.C. is
in the final stages of being shutdown and will be co mpletely
clo sed in May 2002.
3. The Co lumbus, Ohio mail o rder facility ( the “Mail Facility”)
would be clo sed and its o peratio ns wo uld be transferred to the
Co mpany’s Pittsburgh, Pennsylvania mail order facility by no
later than April 2002. Since this lo catio n was a leased facility,
management planned to either return the premises to the
landlo rd at the co nclusion of the lease o r nego tiate an early
termination of the co ntractual obligatio n. The Mail Facility was
clo sed in March 2002.
4. Two satellite office facilities ( the “Satellite Facilities”) wo uld
be clo sed and their operatio ns wo uld be co nso lidated into the
Co mpany’s Wo o nso cket, Rho de Island c o rpo rate headquarters
by no later than December 2001. Since these lo catio ns were
leased facilities, management planned to either return the
premises to the landlo rds at the co nclusio n o f the leases o r
nego tiate an early terminatio n o f the c o ntractual obligatio ns.
The Satellite Facilities were clo sed in December 2001.
5. Staff reductio ns related to the abo ve clo sings and other
streamlining initiatives.
In acc o rdance with, Emerging Issues Task Fo rce ( “EITF”) Issue
94- 3, “Liability Reco g nitio n for Certain Emplo yee Terminatio n
Benefits and Other Co sts to Exit an Activity (Including Certain
Co sts Incurred in a Restructuring) ,” SFAS No . 121, and Staff
Acc o unting Bulletin No . 100, “Restructuring and Impairment
Charge s,” the Co mpany reco rded a $346.8 millio n pre-tax charge
( $226.9 millio n after-tax) to o perating expenses during the
fo urth quarter of 2001 fo r restructuring and asset impairment
Notes to Consolidated Financial Statements
2