CVS 2004 Annual Report Download - page 24
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Please find page 24 of the 2004 CVS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.place, although each purchaser agreed to indemnify us for
any lease obligations we were required to satisfy. If any of the
purchasers were to become insolvent and failed to make the
required payments under a store lease, we could be required to
satisfy these obligations. Assuming that each respective purchaser
became insolvent, and we were required to assume all of these
lease obligations, we estimate that we could settle the obligations
for approximately $517 million as of January 1, 2005. As of
January 1, 2005, we guaranteed approximately 525 such store
leases, some with terms extending as long as 2018.
During 2003, Bob’s Stores and affiliates (“Bob’s Stores”) 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,
asubsidiary of TJX has assumed each of the Bob’s Stores leases
that we had guaranteed. Furthermore, TJX has agreed to
indemnify us for any liability we incur or suffer in respect to
lease obligations during the time TJX or its affiliates owns and
operates these store locations.
During 2004, KB Toys, Inc. and affiliates (“KB”) and Footstar,
Inc. and affiliates (“Footstar”) each filed a voluntary petition
for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.
We are unable to determine at this time the potential liability we
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity
with generally accepted accounting principles, which requires
management to make certain estimates and apply judgment.
We base our estimates and judgments on historical experience,
current trends and other factors that management believes to be
important at the time the consolidated financial statements are
prepared. On a regular basis, we review our accounting policies
andhow they are applied and disclosed in our consolidated
financial statements. While we believe that the historical
experience, current trends and other factors considered support
the preparation of our consolidated financial statements in
conformity with generally accepted accounting principles,
actual results could differ from our estimates, and such
differences could be material.
Our significant accounting policies are discussed in Note 1 to
our consolidated financial statements. We believe the following
accounting policies include a higher degree of judgment and/or
complexity and, thus, are considered to be critical accounting
policies. The critical accounting policies discussed below are
applicable to both of our business segments. We have discussed
the development and selection of our critical accounting policies
with the Audit Committee of our Board of Directors and the
Audit Committee has reviewed our disclosures relating to them.
IMPAIRMENT OF LONG-LIVED ASSETS
Weevaluate the recoverability of long-lived assets, including
intangible assets with finite lives, but excluding goodwill,
which is tested for impairment using a separate test, annually
orwhenever events or changes in circumstances indicate that
Following is a summary of our significant contractual obligations as of January 1, 2005:
payments due by period
WITHIN AFTER
In millions TOTAL 1YEAR 1-3 YEARS 3-5 YEARS 5YEARS
Operating leases $15,340.1 $1,181.3 $2,180.8 $1,980.9 $9,997.1
Long-termdebt 1,955.7 30.5 676.5 696.6 552.1
Purchase obligations 116.4 29.1 58.2 29.1 —
Other long-term liabilities reflected in our consolidated balance sheet 233.5 59.6 141.8 18.5 13.6
Capital lease obligations 0.8 0.1 0.2 0.3 0.2
$17,646.5 $ 1,300.6 $ 3,057.5 $ 2,725.4 $ 10,563.0
may have under the KB and Footstar leases we have guaranteed.
However, we believe that any potential liability with respect
to the KB lease guarantee obligations would be mitigated
bythe indemnification we received from Consolidated Stores
Corporation (now known as Big Lots, Inc.) as purchaser
of KB from us. Since filing for bankruptcy, we understand
that KB has rejected approximately 400 leases (not all of which
were guaranteed by us). Few parties have made demand upon
us as a result of the foregoing rejected leases, and in those cases
where demand has been made, Big Lots, Inc. has honored its
indemnification obligations to us. In the Footstar bankruptcy
case, Footstar assumed and assigned most of the leases
guaranteed by us to third parties who continue to perform under
the leases. As of the date of this report, few parties have made
demand upon us based upon rejected Footstar leases.
We believe the ultimate disposition of any of the corporate
level lease guarantees will not have a material adverse effect on
our consolidated financial condition, results of operations or
future cash flows.
We issue letters of credit for insurance programs and import
purchases. The fair value of the outstanding letters of credit was
$132.5 million as of January 1, 2005.
22 | Management’s Discussion & Analysis of Financial Condition and Results of Operation