CVS 2006 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
26 CVS Corporation
RECENT ACCOUNTING PRONOUNCEMENTS
We adopted SFAS No. 123(R), “Share-Based Payment,” effective
January 1, 2006. This statement established standards for accounting
for transactions in which an entity exchanges its equity instruments for
goods or services. The statement focused primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment transactions. The adoption of this statement resulted in a
$42.7 million reduction in net earnings for 2006. Please see Note 7
to our consolidated financial statements for additional information
regarding stock-based compensation.
We adopted Financial Accounting Standards Board Staff Position
(“FSP”) No. FAS 13-1, “Accounting for Rental Costs Incurred during
a Construction Period,” effective January 1, 2006. This FSP addresses
the accounting for rental costs associated with operating leases that
are incurred during a construction period and requires rental costs
associated with ground or building operating leases that are incurred
during a construction period to be recognized as rental expense over
the life of the lease. The adoption of this statement did not have a
material impact on our consolidated results of operations, financial
position or cash flows.
We adopted SAB No. 108, effective November 15, 2006. SAB No. 108
requires misstatements to be quantified based on their impact on each
of the financial statements and related disclosures. The adoption of this
statement resulted in a $24.7 million increase in net earnings for 2006.
We adopted SFAS No. 158, “Employer’s Accounting for Defined Benefit
Pension and Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106, and 132(R),” effective December 15, 2006.
SFAS No. 158 requires an employer to recognize in its statement of
financial position an asset for a plan’s overfunded status or a liability for
a plan’s underfunded status, measure a plan’s assets and its obligations
that determine its funded status as of the end of the employer’s fiscal
year, and recognize changes in the funded status of a defined benefit
postretirement plan in the year in which the changes occur. Those
changes will be reported in comprehensive income and in a separate
component of stockholder’s equity. The adoption of this statement did
not have a material impact on our consolidated results of operations,
financial position or cash flows.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued
FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109.” FIN No. 48
clarifies the accounting and disclosure for uncertain tax positions, which
relate to the uncertainty about how certain tax positions taken or expected
to be taken on a tax return should be reflected in the financial statements
before they are finally resolved with the taxing authorities. FIN No. 48 is
effective for fiscal years beginning after December 15, 2006. Although
we are still analyzing the impact of FIN No. 48, we do not believe the
adoption will have a material impact on our consolidated results of
operations and financial position.
In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurement.” SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and
expands disclosures regarding fair value measurements. SFAS No. 157
is effective for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. We are currently evaluating the impact
that SFAS No. 157 may have on our consolidated results of operations
and financial position.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”)
provides a safe harbor for forward-looking statements made by or on
behalf of CVS Corporation. The Company and its representatives may,
from time to time, make written or verbal forward-looking statements,
including statements contained in the Company’s filings with the Securities
and Exchange Commission and in its reports to stockholders. Generally,
the inclusion of the words “believe,” “expect,” “intend,” “estimate,”
“project,” “anticipate,” “will” and similar expressions identify statements
that constitute forward-looking statements.
All statements addressing operating performance of CVS Corporation
or any subsidiary, events or developments that the Company expects or
anticipates will occur in the future, including statements relating to
sales growth, earnings or earnings per common share growth, free cash
flow, debt rating, inventory levels, inventory turn and loss rates, store
development, relocations and new market entries, as well as statements
expressing optimism or pessimism about future operating results or
events, are forward-looking statements within the meaning of the
Reform Act.
The forward-looking statements are and will be based upon management’s
then-current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements.
The Company undertakes no obligation to update or revise any forward-
looking statements, whether as a result of new information, future events,
or otherwise.
By their nature, all forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those contemplated
by the forward-looking statements for a number of reasons, including,
but not limited to:
• Our ability to obtain CVS and Caremark stockholder approval for the
merger with Caremark;