CVS 2008 Annual Report Download - page 58

54 CVS CAREMARK
Notes to Consolidated Financial Statements
Following is a summary of the Company’s net rental expense for
operating leases for the respective years:
In millions 2008 2007 2006
Minimum rentals $ 1,691.3 $ 1,557.0 $ 1,361.2
Contingent rentals 57.8 65.1 61.5
1,749.1 1,622.1 1,422.7
Less: sublease income (24.9) (21.5) (26.4)
$ 1,724.2 $ 1,600.6 $ 1,396.3
Following is a summary of the future minimum lease payments
under capital and operating leases as of December 31, 2008:
Capital Operating
In millions Leases Leases
2009 $ 17.0 $ 1,744.2
2010 17.2 1,854.4
2011 17.2 1,609.0
2012 17.6 1,682.6
2013 17.9 1,583.4
Thereafter 83.0 14,821.0
$ 169.9 $ 23,294.6
Less: imputed interest (125.6) –
Present value of capital lease obligations $ 44.3 $ 23,294.6
The Company fi nances a portion of its store development
program through sale-leaseback transactions. The properties
are sold and the resulting leases qualify and are accounted for
as operating leases. The Company does not have any retained
or contingent interests in the stores and does not provide any
guarantees, other than a guarantee of lease payments, in
connection with the sale-leaseback transactions. Proceeds
from sale-leaseback transactions totaled $203.8 million in 2008.
This compares to $601.3 million in 2007 and $1.4 billion in
2006, which included approximately $800 million in proceeds
associated with the sale and leaseback of some of the proper-
ties, acquired from Albertson’s, Inc. Under the transactions, the
properties are sold at fair value, which approximates net book
value, and the resulting leases qualify and are accounted for as
operating leases. The operating leases that resulted from these
transactions are included in the above table.
MEDICARE PART D
The Company offers Medicare Part D benefi ts through
SilverScript, which has contracted with CMS to be a PDP and,
pursuant to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (“MMA”), must be a risk-bearing
entity regulated under state insurance laws or similar statutes.
In addition, RxAmerica offered Medicare Part D benefi ts
under insurance waivers from CMS. RxAmerica has acquired a
registered insurance company, subsequently renamed Accendo
On September 10, 2008, the Company issued $350 million of
fl oating rate senior notes due September 10, 2010 (the “2008
Notes”). The 2008 Notes pay interest quarterly 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 2008
Notes were used to fund a portion of the Longs Acquisition.
On May 22, 2007, the Company 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, the Company entered
into an underwriting agreement pursuant to which the Company
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 6.302% per year
until June 1, 2012 at which time they will pay interest based on
a fl oating rate. The 2007 Notes and ECAPS pay interest semi-
annually 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
a portion of the bridge credit facility and commercial paper
borrowings used to fund a portion of the Longs Acquisition
purchase price and retire $353 million of debt assumed as
part of the Longs Acquisition.
The credit facilities, back-up credit facility, unsecured senior
notes and ECAPS contain customary restrictive fi nancial and
operating covenants. The covenants do not materially affect the
Company’s fi nancial or operating fl exibility.
The aggregate maturities of long-term debt for each of the fi ve
years subsequent to December 31, 2008 are $653.3 million in
2009, $2.1 billion in 2010, $803.9 million in 2011, $1.0 billion
in 2012 and $3.8 million in 2013.
LEASES
The Company leases most of its retail and mail locations, ten
of its distribution centers and certain corporate offi ces under
non-cancelable operating leases, with initial terms of 15 to 25
years and with options that permit renewals for additional periods.
The Company also leases certain equipment and other assets
under non-cancelable operating leases, with initial terms of
3 to 10 years. Minimum rent is expensed on a straight-line
basis over the term of the lease. In addition to minimum rental
payments, certain leases require additional payments based
on sales volume, as well as reimbursement for real estate taxes,
common area maintenance and insurance, which are expensed
when incurred.
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