CVS 2004 Annual Report Download - page 45
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Please find page 45 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.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. The discovery phase is
now complete, a motion for summary judgment has been denied
and a trial date has been set for May 9, 2005. The Company
believes the Securities Action is without merit and intends to
defend against it vigorously.
On October 29, 2004, a class action lawsuit asserting claims
under the Employee Retirement Income Security Act was filed
under the caption Fescina v. CVS Corp., et. al., No. 04-CV-12309
(JLT) (D. Mass.) (the “ERISA Action”). The purported class
includes persons who were participants in or beneficiaries of the
CVS 401(k) plan between December 1, 2000 and October 30,
2001. The suit was filed in the United States District Court
for the District of Massachusetts and designated as related to
the Securities Action. The complaint names as defendants the
Company, its chief executive officer, certain members of the
CVS Board of Directors and certain unnamed fiduciaries. The
Company believes the ERISA Action is entirely without merit
and intends to defend the action vigorously.
On December 17, 2004, Richard Krantz filed a shareholder
derivative suit under the caption Krantz v. Ryan, et. al.,
No. 04-CV-12650 (REK) (D. Mass), based upon essentially the
same allegations that underlie the Securities Action and the
ERISA Action. The suit was filed in the United States District
Court for the District of Massachusetts. The complaint names
as defendants the Company (as nominal defendant), its chief
executive officer, its chief financial officer and certain members of
its Board of Directors. The Company believes this action is entirely
without merit and intends to defend the action 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 ²
²Income taxes
The provision for income taxes consisted of the following for the
respective years:
In millions 2004 2003 2002
Current:
Federal $ 397.7 $ 421.5 $ 347.1
State 62.6 77.3 57.0
460.3 498.8 404.1
Deferred:
Federal 22.5 31.0 32.0
State (5.2) (1.6) 3.1
17.3 29.4 35.1
Total $ 477.6 $ 528.2 $ 439.2
CVS Corporation 2004 Annual Report | 43
Following is a reconciliation of the statutory income tax rate to
the Company’s effective tax rate for the respective years:
2004 2003 2002
Statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net
of federal tax benefit 3.8 3.6 3.4
Other (0.3) (0.2) (0.4)
Federal and net
State reserve release (4.3) — —
Effective tax rate 34.2% 38.4 % 38.0%
Following is a summary of the significant components of the
Company’s deferred tax assets and liabilities as of the respective
balance sheet dates:
In millions JAN. 1, 2005 JAN. 3, 2004
Deferred tax assets:
Lease and rents $ 298.7 $ 127.6
Inventory 111.3 93.4
Employee benefits 51.8 57.2
Accumulated other
comprehensive items 33.4 22.6
Retirement benefits 15.0 22.3
Allowance for bad debt 20.8 25.2
Amortization method 19.9 20.4
Other 61.3 35.8
Total deferred tax assets 612.2 404.5
Deferred tax liabilities:
Accelerated depreciation (231.5) (194.0)
Total deferred tax liabilities (231.5) (194.0)
Net deferred tax assets $ 380.7 $ 210.5
During the fourth quarter of 2004, the Company’s assessment of
its tax reserves resulted in a reduction that was principally based
on finalizing certain tax return years and on a recent court
decision relevant to the industry. As a result, the Company
reversed $60.0 million of previously recorded tax reserves
through the income tax provision. 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.
11 ²
²Business 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.