CVS 2001 Annual Report Download - page 27

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2001 Annual Report
Employee St ock Ownership Plan
The Co mpany spo nso rs a defined co ntributio n Emplo yee
Stoc k Ownership Plan ( the “ESOP”) that covers full- time
employees with at least o ne year of service.
In 1989, the ESOP Trust issued and so ld $357.5 millio n o f
20- year, 8.52% no tes due December 31, 2008 ( the “ESOP No tes”) .
The pro ceeds fro m the ESOP No tes were used to purchase 6.7
millio n shares of Series One ESOP Co nvertible Preference Sto ck
( the “ESOP Preference Sto ck”) from the Co mpany. Since the ESOP
No tes are guaranteed by the Co mpany, the o utstanding balance
is reflected as lo ng-term debt and a c o rrespo nding guaranteed
ESOP o bligatio n is reflected in shareho lders’ equity in the
acco mpanying c o nso lidated balance sheets.
Each share of ESOP Preference Sto ck has a g uaranteed minimum
liquidatio n value o f $53.45, is co nvertible into 2.314 shares o f
co mmo n sto ck and is entitled to receive an annual dividend of
$3.90 per share. The ESOP Trust uses the dividends received and
co ntributio ns fro m the Co mpany to repay the ESOP No tes. As the
ESOP No tes are repaid, ESOP Preference Sto ck is allo cated to
participants based o n: ( i) the ratio of each year’s debt service
payment to to tal c urrent and future debt service payments
multiplied by ( ii) the number of unallo cated shares of ESOP
Preference Sto ck in the plan. As of Dec ember 29, 2001, 4.9
millio n shares of ESOP Preference Sto c k were o utstanding, of
which 2.3 millio n shares were allo cated to participants and the
remaining 2.6 millio n shares were held in the ESOP Trust fo r
future allocatio ns.
Annual ESOP expense reco gnized is equal to ( i) the interest
inc urred o n the ESOP No tes plus ( ii) the higher of ( a) the
principal repayments o r ( b) the co st of the shares allo cated, less
( iii) the dividends paid. Similarly, the g uaranteed ESOP o bligatio n
is reduced by the higher o f ( i) the principal payments o r ( ii) the
co st o f shares allo c ated.
Fo llo wing is a summary o f the ESOP activity fo r the
respective years:
Pension Plans and Other
Postret irement Benef its
The Co mpany spo nso rs a nonco ntributo ry defined benefit pension
plan that c o vers certain full- time emplo yees o f Revco , D.S., Inc
who were no t co vered by co llective barg aining agreements. On
September 20, 1997, the Co mpany suspended future benefit
accruals under this plan. Benefits paid to retirees are based upo n
age at retirement, years o f credited servic e and average
co mpensatio n during the five year perio d ending September 20,
1997. The plan is funded based o n actuarial c alculatio ns and
applicable federal regulatio ns.
Pursuant to vario us labo r agreements, the Co mpany is also
required to make contributio ns to certain unio n- administered
pensio n and health and welfare plans that to taled $11.1 millio n,
$9.3 millio n and $8.4 millio n in 2001, 2000 and 1999,
respectively. The Co mpany also has no nqualified supplemental
executive retirement plans in place fo r certain key emplo yees fo r
who m it has purchased co st reco very variable life insurance.
Def ined Contribution Plans
The Co mpany spo nso rs a voluntary 401( k) Savings Plan that
co vers substantially all emplo yees who meet plan eligibility
requirements. The Co mpany makes matching co ntributions
co nsistent with the pro visio ns of the plan. At the partic ipant’s
o ptio n, acco unt balances, including the Co mpany’s matc hing
co ntributio n, can be mo ved witho ut restrictio n among various
investment o ptio ns, including the Co mpany’s c o mmo n stoc k. The
Co mpany also maintains a no nqualified, unfunded Deferred
Co mpensatio n Plan fo r certain key emplo yees. This plan pro vides
participants the o ppo rtunity to defer po rtio ns of their
co mpensatio n and receive matching co ntributio ns that they
would have o therwise received under the 401( k) Savings Plan if
not fo r certain restrictio ns and limitatio ns under the Internal
Revenue Co de. The Co mpany’s co ntributio ns under the abo ve
defined co ntributio n plans to taled $26.7 millio n, $23.0 millio n
and $17.0 millio n in 2001, 2000 and 1999, respectively. The
Co mpany also spo nso rs an Emplo yee Sto ck Ownership Plan. See
No te 5 fo r further info rmatio n abo ut this plan.
Ot her Postretirement Benefit s
The Co mpany pro vides postretirement healthcare and life
insuranc e benefits to certain retirees who meet eligibility
requirements. The Co mpany’s funding po licy is generally to pay
co vered expenses as they are incurred.
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In millions 200 1 2000 1999
ESOP expense reco gnized $ 22.1 $ 18.8 $ 16.6
Dividends paid 19.1 19.5 20.1
Cash co ntributio ns 22.1 18.8 16.6
Interest payments 20.5 21.9 23.1
ESOP shares allo cated 0 .4 0.3 0.3