CVS 2009 Annual Report Download - page 60

Notes to Consolidated Financial Statements
Note 2 Business Combinations
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. was merged with
a newly formed subsidiary of CVS Corporation, with Caremark
Rx, Inc., L.L.C. (“Caremark”) 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 share-
holders 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.
CVS Corporation was considered the acquirer of Caremark
for accounting purposes and the total purchase price was
allocated to the assets acquired and liabilities assumed from
Caremark based on their fair values as of March 22, 2007.
The total consideration was approximately $26.9 billion
and includes amounts related to Caremark common stock
($23.3 billion), Caremark stock options ($600 million) and
special cash dividend ($3.2 billion), less shares held in trust
($300 million). The results of the operations of Caremark
have been included in the consolidated statements of opera-
tions since March 22, 2007.
Effective October 20, 2008, the Company acquired Longs
Drug Stores Corporation for approximately $2.6 billion (the
“Longs Acquisition”). The fair value of the assets acquired
and liabilities assumed were $4.4 billion and $1.8 billion,
respectively. The Longs Acquisition included 529 retail drug
stores, RxAmerica, LLC, which provides pharmacy benefit
management services and Medicare Part D benefits and other
related assets. The Company’s results of operations and cash
flows include the Longs Acquisition beginning October 20, 2008.
Effective December 30, 2009, the Company acquired an
approximately 60% interest in Generation Health, a genetic
benefit management company for approximately $34 million
in cash and issued certain put rights to the remaining noncon-
trolling shareholders. The put rights allow the noncontrolling
shareholders to require the Company to buy their shares for
cash in the future, depending on certain financial metrics of
Generation Health. The fair value of the redeemable noncon-
trolling interest including put rights on the date of acquisition
was approximately $37 million which was determined using
inputs classified as Level 3 in the fair value hierarchy.
Company to be separately disclosed in the consolidated
statement of operations. Noncontrolling interests in consoli-
dated subsidiaries are generally required to be reported as a
separate component of equity in the consolidated balance
sheet, apart from the equity of the parent company. However,
a redeemable noncontrolling interest subject to a put option,
which may require the purchase of an interest in a consolidated
subsidiary from a noncontrolling interest holder, is required
to be classified outside of shareholders’ equity.
During the first quarter of 2008, the Company adopted addi-
tional guidance within ASC 715-60 Defined Benefit Plans-Other
Postretirement (formerly Emerging Issues Task Force (“EITF”)
No. 06-4, “Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements” and EITF No. 06-10, “Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements”).
The application of this guidance requires a company to
recognize a liability for the discounted value of the future
premium benefits that a company will incur through the death
of the underlying insured and provides guidance for determin-
ing 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.
The adoption of the content within ASC 715-60 did not have
a material impact on the Company’s consolidated results of
operations, financial position or cash flows.
RECENT ACCOUNTING PRONOUNCEMENT NOT
YET EFFECTIVE
In June 2009, the FASB issued SFAS No. 167 (not yet codified
in ASC), “Amendments to FASB Interpretation No. 46(R),”
(“SFAS 167”). The standard amends the content within ASC
810 Consolidations (formerly FASB Interpretations (“FIN”)
No. 46 (R)) to require a company to analyze whether its
interest in a variable interest entity (“VIE”) gives it a controlling
financial interest. The determination of whether a company is
required to consolidate another entity is based on, among other
things, the other entity’s purpose and design and a company’s
ability to direct the activities of the other entity that most
significantly impact the other entity’s economic performance.
Additional disclosures are required to identify a company’s
involvement with the VIE and any significant changes in risk
exposure due to such involvement. SFAS 167 is effective for all
new and existing VIEs as of the beginning of the first fiscal year
that begins after November 15, 2009. The Company does not
believe the adoption of SFAS 167 will have a material impact
on the Company’s consolidated results of operations, financial
position or cash flows.
CVS Caremark
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