CVS 2007 Annual Report Download - page 54

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50 I CVS Caremark
Diluted earnings per common share is computed by dividing:
(i) net earnings, after accounting for the difference between the
dividends on the ESOP preference stock and common stock and
after making adjustments for the incentive compensation plans,
by (ii) Basic Shares plus the additional shares that would be
issued assuming that all dilutive stock awards are exercised
and the ESOP preference stock is converted into common stock.
Options to purchase 10.7 million, 4.7 million and 6.9 million
shares of common stock were outstanding as of December 29,
2007, December 30, 2006 and December 31, 2005, respectively,
but were not included in the calculation of diluted earnings per
share because the options’ exercise prices were greater than the
average market price of the common shares and, therefore, the
effect would be antidilutive.
New Accounting Pronouncements
The Company adopted Financial Accounting Standards
Board Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109”
(“FIN 48”) effective December 31, 2006. FIN 48 addresses the
uncertainty about how certain income tax positions taken or
expected to be taken on an income tax return should be reflected
in the financial statements before they are finally resolved. As
a result of the implementation, the Company recognized a
decrease to reserves for uncertain income tax positions of
approximately $4.0 million, which was accounted for as an
increase to the December 31, 2006 balance of retained earnings.
The Company adopted 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. The adoption
of this statement did not have a material impact on its consoli-
dated results of operations, financial position or cash flows.
In June 2006, the Emerging Issues Task Force of the Financial
Accounting Standards Board (“FASB”) reached a consensus
on EITF Issue No. 06-4, “Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements” (“EITF 06-4”), which requires the
application of the provisions of SFAS No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions”
(“SFAS 106”) (if, in substance, a postretirement benefit plan
exists), or Accounting Principles Board Opinion No. 12 (if the
arrangement is, in substance, an individual deferred compensation
contract) to endorsement split-dollar life insurance arrangements.
SFAS 106 would require the Company to recognize a liability
for the discounted value of the future benefits that it will
incur through the death of the underlying insureds. EITF 06-4 is
currently effective for fiscal years beginning after December 15,
2007. The Company is currently evaluating the potential impact
the adoption of EITF 06-4 may have on its consolidated results of
operations, financial position and cash flows.
In March 2007, the FASB issued Emerging Issues Task Force Issue
No. 06-10 “Accounting for Collateral Assignment Split-Dollar
Life Insurance Agreements” (“EITF 06-10”). EITF 06-10 provides
guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of
the associated asset on the basis of the terms of the collateral
assignment agreement. EITF 06-10 is effective for fiscal years
beginning after December 15, 2007. The Company is currently
evaluating the potential impact the adoption of EITF 06-10 may
have on its consolidated results of operations, financial position
and cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),
“Business Combinations” (“SFAS 141R”), which replaces FASB
Statement No. 141. SFAS 141R establishes the principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities
assumed, any non controlling interest in the acquiree and the
goodwill acquired. The Statement also establishes disclosure
requirements which will enable users to evaluate the nature and
financial effects of business combinations. SFAS 141R is effective
for fiscal years beginning after December 15, 2008. The Company
is currently evaluating the potential impact, if any, the adoption
of SFAS 141R may have on its consolidated results of operations,
financial position and cash flows.