CVS 2004 Annual Report Download - page 44
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Please find page 44 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.The Company applies APB Opinion No. 25 to account for its
stock incentive plans. Accordingly, no compensation cost has
been recognized for stock options granted. Had compensation
cost been recognized based on the fair value of stock options
granted consistent with SFAS No. 123, net earnings and net
earnings per common share (“EPS”) would approximate the
pro forma amounts shown below:
In millions,
except per share amounts 2004 2003 2002
Net earnings:
As reported $ 918.8 $ 847.3 $ 716.6
Pro forma 880.1 797.1 662.5
Basic EPS:
As reported $ 2.27 $ 2.11 $ 1.79
Pro forma 2.17 1.98 1.65
Diluted EPS:
As reported $ 2.20 $ 2.06 $ 1.75
Pro forma 2.11 1.95 1.62
The per share weighted average fair value of stock options
granted during 2004, 2003 and 2002 was $12.93, $9.01 and
$10.46, respectively.
The fair value of each stock option grant was estimated using the
Black-Scholes Option Pricing Model with the following assumptions:
2004 2003 2002
Dividend yield 0.65% 0.85% 0.96%
Expected volatility 30.50% 29.63% 29.50%
Risk-free interest rate 3.9% 3.5% 4.0%
Expected life 6.6 7.0 7.0
The 1999 Employee Stock Purchase Plan provides for the
purchase of up to 7.4 million shares of common stock. Under the
plan, eligible employees may purchase common stock at the end
of each six-month offering period, at a purchase price equal to
85% of the lower of the fair market value on the first day or the
last day of the offering period. During 2004, 0.9 million shares
of common stock were purchased at an average price of $26.89
per share. As of January 1, 2005, 4.2 million shares of common
stock have been issued since inception of the plan.
9 ²
²Commitments & contingencies
Between 1991 and 1997, the Company sold or spun off a num-
ber of subsidiaries, including Bob’s Stores, Linens ’n Things,
Marshalls, Kay-Bee Toys, Wilsons, This End Up and Footstar.
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 1, 2005, the Company guaranteed approximately
525 such store leases, with terms extending as long as 2018.
Assuming that each respective purchaser became insolvent, and
the Company was required to assume all of these lease obliga-
tions, management estimates that the Company could settle the
obligations for approximately $517 million as of January 1, 2005.
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 1, 2005, the Company had outstanding
commitments to purchase $116 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 (JLT) (D. Mass.) and a consolidated and amended
complaint was filed on April 8, 2002 (the “Securities Action”).
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
42 | Notes to Consolidated Financial Statements
Following is a summary of the stock options outstanding and exercisable as of January 1, 2005:
Shares in thousands options outstanding options exercisable
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
$ 1.81 to $ 15.00 129 1.2 $ 13.81 129 $ 13.81
15.01 to 25.00 1,362 1.7 20.28 1,323 20.15
25.01 to 30.00 10,993 7.5 27.53 2,520 29.85
30.01 to 35.00 2,248 5.3 31.89 2,148 31.91
35.01 to 50.00 6,529 4.8 38.51 3,661 40.86
50.01 to 61.23 3,654 6.0 60.44 2,768 60.42
Total 24,914 6.0 $ 35.16 12,549 $ 38.97