CVS 2007 Annual Report Download - page 55

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51 I 2007 Annual Report
Business Combinations
Caremark Merger
Effective March 22, 2007, pursuant to the Agreement and
Plan of Merger dated as of November 1, 2006, as amended
(the “Merger Agreement”), Caremark Rx, Inc. (“Caremark”)
was merged with and into a newly formed subsidiary of
CVS Corporation, with the CVS subsidiary continuing as the
surviving entity (the “Caremark Merger”). Following the merger,
the Company changed its name to CVS Caremark Corporation.
Under the terms of the Merger Agreement, Caremark shareholders
received 1.67 shares of common stock, par value $0.01 per share,
of the Company for each share of common stock of Caremark,
par value $0.001 per share, issued and outstanding immediately
prior to the effective time of the merger. In addition, Caremark
shareholders of record as of the close of business on the day
immediately preceding the closing date of the merger received
a special cash dividend of $7.50 per share.
The merger was accounted for using the purchase method of
accounting under U.S. Generally Accepted Accounting Principles.
Under the purchase method of accounting, CVS Corporation is
considered the acquirer of Caremark for accounting purposes and
the total purchase price will be allocated to the assets acquired
and liabilities assumed from Caremark based on their fair values
as of March 22, 2007. Under the purchase method of account-
ing, the total consideration was approximately $26.9 billion and
includes amounts related to Caremark common stock ($23.3 billion),
Caremark stock options ($0.6 billion) and the special cash dividend
($3.2 billion), less shares held in trust ($0.3 billion). The consider-
ation associated with the common stock and stock options was
based on the average closing price of CVS common stock for
the five trading days ending February 14, 2007, which was
$32.67 per share. The results of the operations of Caremark have
been included in the consolidated statements of operations since
March 22, 2007.
Following is a summary of the estimated assets acquired and
liabilities assumed as of March 22, 2007. This estimate is prelimi-
nary and based on information that was available to management
at the time the consolidated financial statements were prepared.
Accordingly, the allocation will change and the impact of such
changes could be material.
Estimated Assets Acquired and Liabilities
Assumed as of March 22, 2007
In millions
Cash and cash equivalents $ 1,293.4
Short-term investments 27.5
Accounts receivable 2,472.7
Inventories 442.3
Deferred tax asset 95.4
Other current assets 31.4
Total current assets 4,362.7
Property and equipment 209.7
Goodwill 20,853.0
Intangible assets(1) 9,429.5
Other assets 67.1
Total assets acquired 34,922.0
Accounts payable 960.8
Claims and discounts payable 2,430.1
Accrued expenses(2) 991.6
Total current liabilities 4,382.5
Deferred tax liability 3,595.7
Other long-term liabilities 93.2
Total liabilities 8,071.4
Net assets acquired $ 26,850.6
(1) Intangible assets include customer contracts and relationships
($2.9 billion) with an estimated weighted average life of 14.7 years,
proprietary technology ($109.8 million) with an estimated weighted
average life of 3.5 years, favorable leaseholds ($12.7 million) with
an estimated weighted average life of 6.2 years, covenants not to
compete ($9.0 million) with an estimated average life of 2 years
and trade names ($6.4 billion), which are indefinitely lived.
(2) Accrued expenses currently include $49.5 million for estimated
severance, benefits and outplacement costs for approximately
240 Caremark employees that have been or will be terminated. The
amount accrued and the number of employees affected may continue
to increase as exit plans are finalized and communicated. As of
December 29, 2007, $48.1 million of the liability has been settled
with cash payments. The remaining liability will require future cash
payments through 2008. Accrued expenses also include $1.4 million
for the estimated costs associated with the non-cancelable lease
obligation of one location. As of December 29, 2007, $0.5 million
of the liability has been settled with cash payments. The remaining
liability will require future cash payments through 2008.
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