CVS 2003 Annual Report Download - page 43

Income taxes paid were $510.4 million, $319.5 million
and $397.0 million for 2003, 2002 and 2001, respectively.
The Company believes it is more likely than not that the
deferred tax assets included in the above table will be
realized during future periods in which the Company
generates taxable earnings.
9—COMMITMENTS & CONTINGENCIES
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,
management estimates that the Company could settle
the obligations for approximately $592 million as of
January 3, 2004.
Management believes 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.
As of January 3, 2004, the Company had outstanding
commitments to purchase $163 million of merchandise
inventory for use in the normal course of business. The
Company currently expects to satisfy these purchase
commitments by 2008.
Beginning in August 2001, a total of nine actions were
filed against the Company in the United States District
Court for the District of Massachusetts asserting claims
under the federal securities laws. The actions were
subsequently consolidated under the caption In re
CVS Corporation Securities Litigation, No. 01-CV-11464
(D. Mass.) and a consolidated and amended complaint
was filed on April 8, 2002. The consolidated amended
complaint names as defendants the Company, its chief
executive officer and its chief financial officer and asserts
claims for alleged securities fraud under sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 thereunder on behalf of a purported class of
persons who purchased shares of the Company’s common
stock between February 6, 2001 and October 30, 2001.
On June 7, 2002, all defendants moved to dismiss the
consolidated amended complaint. This motion was denied
by the court on December 18, 2002. The parties are
currently engaged in discovery. The Company believes the
consolidated action is without merit and intends to defend
against it vigorously.
The Company is also a party to other litigation arising
in the normal course of its business, none of which is
expected to be material to the Company.
10—BUSINESS SEGMENTS
The Company currently operates two business segments,
Retail Pharmacy and Pharmacy Benefit Management (“PBM”).
The operating segments are segments of the Company for
which separate financial information is available and for
which operating results are evaluated regularly by executive
management in deciding how to allocate resources and in
assessing performance.
As of January 3, 2004, the Retail Pharmacy segment
included 4,132 retail drugstores and the Company’s online
retail website, CVS.com. The retail drugstores are located
in 27 states and the District of Columbia and operate under
the CVS/pharmacy name. The Retail Pharmacy segment is
the Company’s only reportable segment.
The PBM segment provides a full range of prescription
benefit management services to managed care providers and
other organizations. These services include plan design and
administration, formulary management, mail order pharmacy
services, claims processing and generic substitution. The PBM
segment also includes the Company’s specialty pharmacy
business, which focuses on supporting individuals that
require complex and expensive drug therapies. The PBM
segment operates under the PharmaCare Management
Services name, while the specialty pharmacy mail order
facilities and 47 retail pharmacies, located in 19 states and the
District of Columbia, operate under the CVS ProCare name.
Following is a reconciliation of the significant components
of the Company’s net sales for the respective years:
2003 2002 2001
Pharmacy 68.8% 67.6% 66.1%
Front store 31.2 32.4 33.9
100.0% 100.0% 100.0%
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