CVS 2002 Annual Report Download - page 40

Notes to Consolidated Financial Statements
38 CVS Corporation
Asset write-offs included $59.0 million for fixed asset write-offs,
$40.9 million for intangible asset write-offs and $5.7 million for
the markdown of certain inventory to its net realizable value. The
fixed asset and intangible asset write-offs relate to the Stores, the
Mail Facility and the Satellite Facilities. Management’s decision to
close the above locations was considered to be an event or change
in circumstances as defined in SFAS No. 121. Since management
intended to use the Stores and the Mail Facility 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 location level, which is the
lowest level at which individual cash flows can be identified. The
analysis first compared the carrying amount of the location’s
assets to the location’s estimated future cash flows (undiscounted
and without interest charges) through the anticipated closing date.
If the estimated future cash flows used in this analysis were less
than the carrying amount of the location’s assets, an impairment
loss calculation was prepared. The impairment loss calculation
compared the carrying value of the location’s assets to the
location’s estimated future cash flows (discounted and with
interest charges). Since these locations will continue to be
operated until closed, any remaining net book value after the
impairment write down was depreciated over their revised useful
lives. Impairment of the Satellite Facilities was measured using the
“Assets to Be Disposed Of” provisions of SFAS No. 121, since
management intended to vacate the locations immediately. The
entire $3.5 million net book value of the Satellite Facilities was
considered to be impaired since management intended to discard
the assets located in the facilities. The inventory markdown
resulted from the liquidation of certain front store inventory
contained in the Stores. Since management intended to liquidate
the inventory below its cost, an adjustment was made to reduce
the inventory’s cost to its net realizable value.
Employee severance and benefits included $19.5 million for
severance pay, healthcare continuation costs and outplacement
service costs related to approximately 1,500 managerial,
administrative and store employees in the Company’s Woonsocket,
Rhode Island corporate headquarters; Columbus, Mail Facility;
Henderson D.C. and the Stores. As of April 30, 2002, all these
employees had been terminated.
Following is a reconciliation of the beginning and ending liability balances as of December 28, 2002:
Noncancelable Lease Employee
In millions Obligations(1) Asset Write-Offs Severance & Benefits Total
Restructuring charge $ 227.4 $ 105.6 $ 19.5 $ 352.5
Utilized – Cash — — (2.1) (2.1)
Utilized – Non-cash — (105.6) — (105.6)
Balance at 12/29/01 $ 227.4 $ — $ 17.4 $ 244.8
Utilized – Cash (39.6) — (13.1) (52.7)
Balance at 12/28/02(2) $ 187.8 $ — $ 4.3 $ 192.1
(1) Noncancelable lease obligations extend through 2024.
(2) The Company believes that the reserve balances as of December 28, 2002 are adequate to cover the remaining liabilities associated with the Restructuring Charge.