CVS 2003 Annual Report Download - page 38

The amortization expense for these intangible assets totaled
$63.2 million in 2003, $53.3 million in 2002 and $52.7
million in 2001. The anticipated annual amortization
expense for these intangible assets is $66.7 million in
2004, $59.6 million in 2005, $54.5 million in 2006,
$49.0 million in 2007 and $45.0 million in 2008.
5—EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a defined contribution Employee
Stock Ownership Plan (the “ESOP”) that covers full-time
employees with at least one year of service.
In 1989, the ESOP Trust issued and sold $357.5 million of
20-year, 8.52% notes due December 31, 2008 (the “ESOP
Notes”). The proceeds from the ESOP Notes were used to
purchase 6.7 million shares of Series One ESOP Convertible
Preference Stock (the “ESOP Preference Stock”) from the
Company. Since the ESOP Notes are guaranteed by the
Company, the outstanding balance is reflected as long-term
debt and a corresponding guaranteed ESOP obligation is
reflected in shareholders’ equity in the accompanying
consolidated balance sheets.
Each share of ESOP Preference Stock has a guaranteed
minimum liquidation value of $53.45, is convertible into
2.314 shares of common stock and is entitled to receive
an annual dividend of $3.90 per share. The ESOP Trust
uses the dividends received and contributions from the
Company to repay the ESOP Notes. As the ESOP Notes are
repaid, ESOP Preference Stock is allocated to participants
based on (i) the ratio of each year’s debt service payment
to total current and future debt service payments multiplied
by (ii) the number of unallocated shares of ESOP Preference
Stock in the plan. As of January 3, 2004, 4.5 million shares
of ESOP Preference Stock were outstanding, of which
2.7 million shares were allocated to participants and
the remaining 1.8 million shares were held in the ESOP
Trust for future allocations.
Annual ESOP expense recognized is equal to (i) the interest
incurred on the ESOP Notes plus (ii) the higher of (a) the
principal repayments or (b) the cost of the shares allocated,
less (iii) the dividends paid. Similarly, the guaranteed ESOP
obligation is reduced by the higher of (i) the principal
payments or (ii) the cost of shares allocated.
Following is a summary of the ESOP activity for the
respective years:
In millions 2003 2002 2001
ESOP expense recognized $ 30.1 $ 26.0 $ 22.1
Dividends paid 17.7 18.3 19.1
Cash contributions 30.1 26.0 22.1
Interest payments 16.6 18.7 20.5
ESOP shares allocated 0.4 0.4 0.4
6—PENSION PLANS AND OTHER
POSTRETIREMENT BENEFITS
Defined Contribution Plans
The Company sponsors a voluntary 401(k) Savings Plan
that covers substantially all employees who meet plan
eligibility requirements. The Company makes matching
contributions consistent with the provisions of the plan.
At the participant’s option, account balances, including the
Company’s matching contribution, can be moved without
restriction among various investment options, including the
Company’s common stock. The Company also maintains
a nonqualified, unfunded Deferred Compensation Plan
for certain key employees. This plan provides participants
the opportunity to defer portions of their compensation
and receive matching contributions that they would have
otherwise received under the 401(k) Savings Plan if not
for certain restrictions and limitations under the Internal
Revenue Code. The Company’s contributions under the
above defined contribution plans totaled $46.9 million in
2003, $29.1 million in 2002 and $26.7 million in 2001.
The Company also sponsors an Employee Stock Ownership
Plan. See Note 5 for further information about this plan.
Notes to Consolidated Financial Statements
(36) CVS Corporation 2003 Annual Report
JAN. 3, 2004 DEC. 28, 2002
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
In millions AMOUNT AMORTIZATION AMOUNT AMORTIZATION
Customer lists and Covenants not to compete(1) $ 571.3 $ (241.4) $ 464.5 $ (194.1)
Favorable leases and Other(2) 152.3 (78.5) 153.1 (72.1)
$ 723.6 $ (319.9) $ 617.6 $ (266.2)
(1) The increase in the gross carrying amount during 2003 was primarily due to the acquisition of customer lists.
(2) The decrease in the gross carrying amount during 2003 resulted from the write-off of fully amortized favorable leases.
Following is a summary of the Company’s amortizable intangible assets as of the respective balance sheet dates: