CVS 2004 Annual Report Download - page 37
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Please find page 37 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.to service its debt, the Company would have to increase
its contribution to the ESOP Trust to compensate it for the
lower dividends. This additional contribution would reduce
the Company’s net earnings, which in turn, would reduce the
amounts that would be accrued under the Company’s incentive
compensation plans.
Diluted earnings per common share is computed by dividing:
(i) net earnings, after accounting for the difference between
the dividends on the ESOP preference stock and common stock
and after making adjustments for the incentive compensation
plans by (ii) Basic Shares plus the additional shares that would
be issued assuming that all dilutive stock options are exercised
and the ESOP preference stock is converted into common
stock. Options to purchase 4.7 million and 18.5 million shares
of common stock were outstanding as of January 1, 2005 and
January 3, 2004, respectively, but were not included in the
calculation of diluted earnings per share because the options’
exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
New accounting pronouncements–The Company adopted
EITF Issue No. 03-10, “Application of EITF Issue No. 02-16,
‘Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor,’ by Resellers to Sales
Incentives Offered to Consumers by Manufacturers,” effective
January 4, 2004. The adoption of this pronouncement did
not have an impact on the Company’s consolidated results
of operations or financial position.
The Company adopted Financial Accounting Standard Board’s
Staff Position No. FAS 106-2, “Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003,” effective June 15,
2004. This statement requires disclosure of the effects of the
Medicare Prescription Drug, Improvement and Modernization
Act and an assessment of the impact of the federal subsidy
on the accumulated postretirement benefit obligation and
net periodic postretirement benefit cost. The adoption of this
Statement did not have a material impact on the Company’s
consolidated results of operations or financial position.
In December 2004, SFAS No. 123R, “Share-Based Payment”
was issued. This statement establishes standards for the
accounting for transactions in which an entity exchanges its
equity instruments for goods or services. The statement focuses
primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions.
The provisions of this statement are required to be adopted
for interim or annual periods beginning after June 15, 2005.
The Company is currently evaluating the effect of adopting
this statement.
2 ²
²Acquisition
On July 31, 2004, the Company acquired certain assets and
assumed certain liabilities from J.C. Penney Company, Inc.
and certain of its subsidiaries, including Eckerd Corporation
(“Eckerd”). The acquisition included 1,268 Eckerd retail
drugstores and Eckerd Health Services, which includes Eckerd’s
mail order and pharmacy benefit management businesses
(collectively, the “Acquired Businesses”). The Company believes
that the acquisition of the Acquired Businesses is consistent with
its long-term strategy of expanding its retail drugstore business
in high-growth markets and increasing the size and product
offerings of its pharmacy benefits management business. The
results of operations of the Acquired Businesses from August 1,
2004 through January 1, 2005, have been included in the
Company’s consolidated statements of operations for the
52-week period ended January 1, 2005.
The purchase price under the Asset Purchase Agreement is
$2.15 billion, which was adjusted for estimated working capital
at closing. The final purchase price is subject to adjustment
based on the final working capital of the Acquired Businesses
as of the closing date. The Company anticipates that the
adjustment to the purchase price will be finalized during
fiscal 2005. The Company obtained funding for the acquisition
through a combination of cash and commercial paper and
subsequently repaid a portion of the commercial paper used
to fund the acquisition with the proceeds received from the
issuance of $650 million of 4.0% unsecured senior notes due
September 15, 2009 and $550 million of 4.875% unsecured
senior notes due September 15, 2014.
Following is a summary of the estimated assets acquired and
liabilities assumed, which includes estimated transaction costs,
as of July 31, 2004. This estimate is preliminary and based on
information that was available to management at the time the
financial statements were prepared. Accordingly, the allocation
will change and the impact of such changes could be material.
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