CVS 2008 Annual Report Download - page 35

2008 ANNUAL REPORT 31
On May 22, 2007, we issued $1.75 billion of fl oating rate senior
notes due June 1, 2010, $1.75 billion of 5.75% unsecured senior
notes due June 1, 2017, and $1.0 billion of 6.25% unsecured
senior notes due June 1, 2027 (collectively the “2007 Notes”).
Also on May 22, 2007, we entered into an underwriting agree-
ment pursuant to which we agreed to issue and sell $1.0 billion
of Enhanced Capital Advantaged Preferred Securities (“ECAPS”)
due June 1, 2062 to the underwriters. The ECAPS bear interest
at 6.30% per year until June 1, 2012 at which time they will pay
interest based on a fl oating rate. The 2007 Notes and the ECAPS
pay interest semiannually and may be redeemed at any time,
in whole or in part at a defi ned redemption price plus accrued
interest. The net proceeds from the 2007 Notes and ECAPS
were used to repay the bridge credit facility and a portion of the
outstanding commercial paper borrowings.
Our credit facilities, back-up credit facility, unsecured senior
notes and ECAPS contain customary restrictive fi nancial and
operating covenants. These covenants do not include a require-
ment for the acceleration of our debt maturities in the event of a
downgrade in our credit rating. We do not believe the restrictions
contained in these covenants materially affect our fi nancial or
operating fl exibility.
As of December 31, 2008 and December 29, 2007, we had no
freestanding derivatives in place.
Debt Ratings. As of December 31, 2008, our long-term debt
was rated “Baa2” by Moody’s and “BBB+” by Standard &
Poor’s, and our commercial paper program was rated “P-2” by
Moody’s and “A-2” by Standard & Poor’s. Upon completion of
the Caremark Merger in March 2007, Standard & Poor’s raised
the Company’s credit watch outlook from negative to stable. On
May 15, 2008, Moody’s raised the Company’s credit watch from
stable to positive. In assessing our credit strength, we believe
that both Moody’s and Standard & Poor’s considered, among
other things, our capital structure and fi nancial policies as well
as our consolidated balance sheet, the Longs Acquisition, the
Caremark Merger and other fi nancial information. Although we
currently believe our long-term debt ratings will remain invest-
ment grade, we cannot guarantee the future actions of Moody’s
and/or Standard & Poor’s. Our debt ratings have a direct impact
on our future borrowing costs, access to capital markets and
new store operating lease costs.
Quarterly Dividend Increase. On January 12, 2009, the
Company’s Board of Directors approved a 10.5% increase in
the quarterly dividend on the common stock of the Company
to 7.625 cents per share.
OFF-BALANCE SHEET ARRANGEMENTS
In connection with executing operating leases, we provide a
guarantee of the lease payments. We also fi nance a portion of
our new store development through sale-leaseback transactions,
which involve selling stores to unrelated parties and then leasing
the stores back under leases that qualify and are accounted for
as operating leases. We do not have any retained or contingent
interests in the stores, and we do not provide any guarantees,
other than a guarantee of the lease payments, in connection with
the transactions. In accordance with generally accepted account-
ing principles, our operating leases are not refl ected in our
consolidated balance sheet.
Between 1991 and 1997, the Company sold or spun off a
number of subsidiaries, including Bob’s Stores, Linens ‘n Things,
Marshalls, Kay-Bee Toys, This End Up and Footstar. In many
cases, when a former subsidiary leased a store, the Company
provided a guarantee of the store’s lease obligations. When the
subsidiaries were disposed of, the Company’s guarantees
remained in place, although each initial purchaser has indemni-
fi ed the Company for any lease obligations the Company was
required to satisfy. If any of the purchasers or any of the former
subsidiaries were to become insolvent and failed to make the
required payments under a store lease, the Company could be
required to satisfy these obligations.
As of December 31, 2008, the Company guaranteed approxi-
mately 95 such store leases (excluding the lease guarantees
related to Linens ‘n Things), with the maximum remaining lease
term extending through 2018. Management believes the
ultimate disposition of any of the remaining lease guarantees
will not have a material adverse effect on the Company’s
consolidated fi nancial condition or future cash fl ows. Please
see “Loss from Discontinued Operations” previously in this
document for further information regarding our guarantee of
certain Linens ‘n Things’ store lease obligations.