CVS 2003 Annual Report Download - page 37

In connection with our commercial paper program, the
Company maintains a $650 million, five-year unsecured
back-up credit facility, which expires on May 21, 2006 and
a $600 million, 364-day unsecured back-up credit facility,
which expires on May 17, 2004. The credit facilities allow
for borrowings at various rates depending on the Company’s
public debt ratings and require the Company to pay a
quarterly facility fee of 0.08%, regardless of usage. As of
January 3, 2004, the Company had not borrowed against the
credit facilities. There was no short-term debt outstanding
as of January 3, 2004. The weighted average interest rate
for short-term debt was 1.9% as of December 28, 2002.
In October 2002, the Company issued $300 million
of 3.875% unsecured senior notes. The notes are due
November 1, 2007, and pay interest semi-annually. The
Company may redeem these notes at any time, in whole or
in part, at a defined redemption price plus accrued interest.
Net proceeds from the notes were used to repay
outstanding commercial paper.
The Credit Facilities and unsecured senior notes contain
customary restrictive financial and operating covenants.
The covenants do not materially affect the Company’s
financial or operating flexibility.
The aggregate maturities of long-term debt for each of
the five years subsequent to January 3, 2004 are $323.2
million in 2004, $27.9 million in 2005, $334.4 million in
2006, $341.7 million in 2007 and $45.8 million in 2008.
4—GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase price over
the fair value of net assets acquired. Effective December 30,
2001, the Company adopted SFAS No. 142, “Goodwill
and Other Intangible Assets.” As a result of the adoption,
goodwill is no longer being amortized, but is subject to
annual impairment reviews, or more frequent reviews if
events or circumstances indicate there may be an impairment.
The Company groups and evaluates goodwill for impairment
at the reporting unit level annually, or whenever events or
circumstances indicate there may be an impairment. When
evaluating goodwill for potential impairment, the Company
first compares the fair value of the reporting unit, based on
estimated future discounted cash flows, with its carrying
amount. If the estimated fair value of the reporting unit is
less than its carrying amount, an impairment loss calculation
is prepared. The impairment loss calculation compares
the implied fair value of reporting unit goodwill with the
carrying amount of that goodwill. If the carrying amount
of reporting unit goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recognized in an amount
equal to that excess. During the third quarter of 2003, the
Company performed its required annual goodwill impairment
test, which concluded there was no impairment of goodwill.
The following summary details the after-tax impact,
on a pro forma basis, of discontinuing the amortization
of goodwill on net earnings and earnings per common
share (“EPS”) for the respective years:
In millions,
except per share amounts 2003 2002 2001
Net Earnings:
As reported $ 847.3 $ 716.6 $ 413.2
Goodwill amortization ——28.2
As adjusted 847.3 716.6 441.4
Basic EPS:
As reported $ 2.11 $ 1.79 $ 1.02
Goodwill amortization ——0.07
As adjusted 2.11 1.79 1.09
Diluted EPS:
As reported $ 2.06 $ 1.75 $ 1.00
Goodwill amortization ——0.07
As adjusted 2.06 1.75 1.07
The carrying amount of goodwill was $889.0 million and
$878.9 million as of January 3, 2004 and December 28,
2002, respectively. During 2003, gross goodwill increased
$10.1 million, primarily due to acquisitions by the
Company’s PBM segment. There was no impairment
of goodwill during 2003.
Intangible assets other than goodwill are required to be
separated into two categories: finite-lived and indefinite-
lived. Intangible assets with finite useful lives are amortized
over their estimated useful life, while intangible assets with
indefinite useful lives are not amortized. The Company
currently has no intangible assets with indefinite lives.
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