CVS 2004 Annual Report Download - page 40
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Please find page 40 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.straight-line basis over the term of the lease. In addition to
minimum rental payments, certain leases require additional
payments based on sales volume, as well as reimbursements for
real estate taxes, maintenance and insurance.
Following is a summary of the Company’s net rental expense
for operating leases for the respective years:
In millions 2004 2003 2002
Minimum rentals $ 1,020.6 $ 838.4 $ 790.4
Contingent rentals 61.7 62.0 65.6
1,082.3 900.4 856.0
Less: sublease income (14.0) (10.1) (9.3)
$ 1,068.3 $ 890.3 $ 846.7
Following is a summary of the future minimum lease payments
under capital and operating leases as of January 1, 2005:
CAPITAL OPERATING
In millions LEASES LEASES
2005 $ 0.2 $ 1,181.3
2006 0.2 1,120.8
2007 0.2 1,060.0
2008 0.2 1,008.1
2009 0.1 972.8
Thereafter 0.2 9,997.1
1.1 $ 15,340.1
Less: imputed interest (0.3)
Present value of capital lease obligations $ 0.8
The Company finances a portion of its store development
program through sale-leaseback transactions. The properties
are sold at net book value and the resulting leases qualify and
are accounted for as operating leases. The Company does not
have any retained or contingent interests in the stores nor does
the Company provide any guarantees, other than a corporate
level guarantee of lease payments, in connection with the
sale-leasebacks. Proceeds from sale-leaseback transactions
totaled $496.6 million in 2004, $487.8 million in 2003 and
$448.8 million in 2002. The operating leases that resulted
from these transactions are included in the above table.
6 ²
²Employee 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 1, 2005, 4.3 million shares of ESOP Preference
Stock were outstanding, of which 2.8 million shares were
allocated to participants and the remaining 1.5 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 2004 2003 2002
ESOP expense recognized $ 19.5 $ 30.1 $ 26.0
Dividends paid 16.6 17.7 18.3
Cash contributions 19.5 30.1 26.0
Interest payments 13.9 16.6 18.7
ESOP shares allocated 0.3 0.4 0.4
7 ²
²Pension 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
38 | Notes to Consolidated Financial Statements