CVS 2003 Annual Report Download - page 24

Management’s Discussion & Analysis of Financial Condition and Results of Operation
(22) CVS Corporation 2003 Annual Report
The following table summarizes our significant contractual obligations as of January 3, 2004:
PAYMENTS DUE BY PERIOD
WITHIN 1-3 3-5 AFTER
In millions TOTAL 1 YEAR YEARS YEARS 5 YEARS
Operating leases $ 10,788.9 $ 855.9 $ 1,574.0 $ 1,366.1 $ 6,992.9
Long-term debt 1,075.0 323.0 361.9 387.0 3.1
Purchase obligations 163.0 32.6 65.2 65.2 —
Other long-term liabilities reflected in
our consolidated balance sheet 173.0 36.6 87.7 18.6 30.1
Capital lease obligations 1.3 0.2 0.4 0.4 0.3
$ 12,201.2 $ 1,248.3 $ 2,089.2 $ 1,837.3 $ 7,026.4
OFF-BALANCE SHEET ARRANGEMENTS
Other than in connection with executing operating leases,
we do not participate in transactions that generate
relationships with unconsolidated entities or financial
partnerships, including variable interest entities, nor
do we have or guarantee any off-balance sheet debt.
We financ e a portion of our new store development
through sale-leaseback transactions, which involve selling
stores to unrelated parties at net book value and then
leasing the stores back under leases that qualify and are
accounted for as operating leases. We do not have any
retained or contingent interests in the stores nor do we
provide any guarantees, other than a corporate level
guarantee of the lease payments, in connection with the
sale-leasebacks. In accordance with generally accepted
accounting principles, our operating leases are not
reflected in our consolidated balance sheet.
Between 1991 and 1997, the Company sold or spun
off a number of subsidiaries, including Bob’s Stores,
Linens ’n Things, Inc., Marshalls, Kay-Bee Toys, Wilsons,
This End Up and Footstar, Inc. In many cases, when a
former subsidiary leased a store, the Company provided
a corporate level guarantee of the store’s lease obligations.
When the subsidiaries were disposed of, the Company’s
guarantees remained in place, although each purchaser
indemnified the Company for any lease obligations the
Company was required to satisfy. If any of the purchasers
were to become insolvent and failed to make the required
payments under a store lease, the Company could be
required to satisfy these obligations. As of January 3, 2004,
the Company guaranteed approximately 706 stores with
leases extending through 2018. Assuming that each
respective purchaser became insolvent, and the Company
was required to assume all of these lease obligations, we
estimate that the Company could settle the obligations
for approximately $592 million as of January 3, 2004.
During 2003, Bob’s Stores and affiliates filed a voluntary
petition for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. Subsequent to the Bob’s Stores filing,
The TJX Companies, Inc. (“TJX”) purchased substantially
all of the assets of Bob’s Stores. Pursuant to the terms of
the purchase, a subsidiary of TJX has assumed each of
the Bob’s Stores leases that the Company has guaranteed.
Furthermore, TJX has agreed to indemnify the Company
for any liability the Company incurs or suffers in respect
of lease obligations during the time TJX or its affiliate
owns and operates these store locations.
In early 2004, KB Toys, Inc. and affiliates (“Kay-Bee
To ys”) and Footstar, Inc. and affiliates (“Footstar”) each
filed a voluntary petition for bankruptcy under Chapter 11
of the U.S. Bankruptcy Code. Due to the preliminary
nature of the Kay-Bee Toys and the Footstar proceedings,
the Company is unable to determine at this time the
potential liability the Company may have under the Kay-Bee
To y s a n d Fo o t s t a r leases it has guaranteed. However, the
Company believes that any potential liability with respect
to these lease guarantee obligations would be mitigated
by the indemnification the Company received from
Consolidated Stores Corporation (now known as Big Lots,
Inc.) as purchaser of Kay-Bee Toys from the Company, and
from Footstar in connection with the 1996 spin-off of
Footstar from the Company.
We believe the ultimate disposition of any of the corporate
level guarantees will not have a material adverse effect on
the Company’s consolidated financial condition, results
of operations or future cash flows.
The Company issues letters of credit for insurance
programs and import purchases. The fair value of the
outstanding letters of credit was $72.0 million as of
January 3, 2004.