CVS 2006 Annual Report Download - page 50

2006 Annual Report 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2006, Laurence M. Silverstein filed a purported class
action lawsuit purportedly on behalf of Caremark stockholders relating
to the proposed merger between Caremark and CVS in the United States
District Court for the Middle District of Tennessee. The suit is brought
against Caremark, its directors, CVS and CVS’ chief executive officer.
The complaint alleges, among other things, that the Caremark directors
breached their fiduciary duties by entering into the proposed merger
with CVS and that the CVS defendants aided and abetted such breaches
of duty. The plaintiff seeks, among other things, preliminary and permanent
injunctive relief to prevent the proposed merger, to direct the defendants
to obtain a transaction that is in the best interests of Caremark, and to
impose a constructive trust upon any benefits improperly received by
the defendants. In January 2007, the plaintiff filed an amended class
action complaint and moved for expedited discovery and preliminary
injunctive relief. The amended class action complaint adds allegations
that the joint proxy statement/prospectus filed on December 19, 2006
omits certain material information. On January 8, 2007, the court stayed
the lawsuit. On January 10, 2007, the plaintiff moved to vacate the stay
order. On January 19, 2007, that motion was denied.
The Louisiana Municipal Police Employees’ Retirement System also
filed a purported class action lawsuit purportedly on behalf of Caremark
stockholders in the Delaware Court of Chancery against Caremark’s
directors and CVS. The complaint alleges, among other things, that
the directors breached their fiduciary duties by entering into the proposed
merger with CVS. The complaint also alleges that the joint proxy statement/
prospectus filed on December 19, 2006 omits certain material information.
The plaintiff seeks, among other things, preliminary and permanent
injunctive relief to prevent the proposed merger. The lawsuit was amended
in January 2007 to add the R.W. Grand Lodge of Free & Accepted Masons
of Pennsylvania as a plaintiff and to add Caremark as a defendant. On
February 12, 2007, Caremark filed a Form 8-K containing supplemental
disclosures concerning the proposed merger between Caremark and
CVS. That same day, plaintiffs moved to delay the Caremark shareholder
meeting, then scheduled for February 20, 2007. On February 13, 2007,
the court enjoined any shareholder vote concerning a merger between
Caremark and any other party until at least March 9, 2007 in order to
afford time for shareholders to fully consider the Caremark supplemental
disclosures. A hearing on the plaintiffs’ request for preliminary injunctive
relief was held on February 16, 2007. On February 23, 2007, the
Court denied plaintiff’s motion for a preliminary injunction enjoining
the planned merger between CVS and Caremark, but delayed the
Caremark shareholder vote on the CVS merger until twenty days after
Caremark makes supplemental disclosures regarding Caremark share-
holders’ right to seek appraisal and the structure of fees to be paid
by Caremark to its financial advisors. The supplemental disclosures
were mailed to Caremark shareholders on February 24, 2007.
In January 2007, Express Scripts, and Skadden, Arps, Slate, Meagher
& Flom LLP (“Skadden”), filed a lawsuit in the Delaware Court of
Chancery against Caremark, its directors, CVS and AdvancePCS. The
complaint alleges, among other things, that the directors breached their
fiduciary duties by entering into the proposed transaction with CVS. The
plaintiffs seek, among other things, declaratory relief and preliminary
and permanent injunctive relief to prevent the proposed merger. The
plaintiffs also seek declaratory relief holding that Skadden’s representa-
tion of Express Scripts does not violate Skadden’s professional, ethical
or contractual obligations. This lawsuit is proceeding on a coordinated
basis with the earlier filed lawsuit in the Delaware Court of Chancery as
described in the preceding paragraph.
In January 2007, Pirelli Armstrong Tire Corporation Retiree Medical
Benefits Trust filed a shareholder derivative action in United States
District Court for the Middle District of Tennessee on behalf of Caremark
against the Caremark board of directors and CVS. The complaint alleges
that the defendants disseminated misleading proxy materials and seeks
preliminary and permanent injunctive relief. In particular, plaintiff
seeks to enjoin the Caremark shareholder vote on the proposed merger
until such time as defendants’ failure to disclose material information is
remedied, and all material information regarding the proposed transaction
is made available to Caremark’s shareholders. On January 24, 2007,
plaintiff filed motions for a preliminary injunction and for expedited
discovery. On January 30, 2007 those motions were denied and the
case was stayed pending outcome of the Delaware litigation.
CVS believes the allegations pertaining to CVS in the shareholder lawsuits
described herein are void of merit and intends to defend them 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 INCOME TAXES
The provision for income taxes consisted of the following for the
respective years:
In millions 2006 2005 2004
Current:
Federal $ 676.6 $ 632.8 $ 397.7
State 127.3 31.7 62.6
803.9 664.5 460.3
Deferred:
Federal 47.6 17.9 22.5
State 5.4 1.9 (5.2)
53.0 19.8 17.3
Total $ 856.9 $ 684.3 $ 477.6