CVS 2009 Annual Report Download - page 63

Note 6 Leases
The Company leases most of its retail and mail locations, 11
of its distribution centers and certain corporate offices under
noncancellable 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 noncancellable 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.
The following table is a summary of the Company’s net rental
expense for operating leases for the respective years:
in millions 2009 2008 2007
Minimum rentals $ 1,857 $ 1,691 $ 1,557
Contingent rentals 61 58 65
1,918 1,749 1,622
Less: sublease income (19) (25) (21)
$ 1,899 $ 1,724 $ 1,601
The following table is a summary of the future minimum lease
payments under capital and operating leases as of Decem-
ber 31, 2009:
Capital Operating
in millions Leases Leases
2010 $ 17 $ 2,094
2011 17 1,877
2012 18 1,953
2013 18 1,855
2014 18 1,657
Thereafter 236 17,477
Total future lease payments $ 324 $ 26,913
Less: imputed interest (170)
Present value of capital lease obligations $ 154
The Company finances a portion of its store development
program through sale-leaseback 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 transac-
tions are included in the above table. 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 $1.6 billion
in 2009. This compares to $204 million in 2008 and $601 million
in 2007.
On July 1, 2009, the Company issued a $300 million unsecured
floating rate senior note due January 30, 2011 (the “the 2009
Floating Rate Note”). The 2009 Floating Rate Note pays interest
quarterly. The net proceeds from the 2009 Floating Rate Note
were used for general corporate purposes.
On September 8, 2009, the Company issued $1.5 billion of
6.125% unsecured senior notes due September 15, 2039 (the
“September 2009 Notes”). The September 2009 Notes pay
interest semi-annually and may be redeemed, in whole or in
part, at a defined redemption price plus accrued interest. The
net proceeds were used to repay a portion of the Company’s
outstanding commercial paper borrowings, $650 million of
unsecured senior notes and for general corporate purposes.
On September 10, 2008, the Company issued $350 million of
floating 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 defined redemp-
tion 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 floating
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 Com-
pany 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 floating rate. The 2007 Notes and ECAPS pay interest
semi-annually and may be redeemed at any time, in whole
or in part at a defined 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 Acquisi-
tion purchase price and retire $353 million of debt assumed as
part of the Longs Acquisition.
The credit facilities, back-up credit facilities, unsecured senior
notes and ECAPS contain customary restrictive financial and
operating covenants. The covenants do not materially affect
the Company’s financial or operating flexibility.
The aggregate maturities of long-term debt for each of the
five years subsequent to December 31, 2009 are $2.1 billion in
2010, $1.1 billion in 2011, $1.0 billion in 2012, $5 million in
2013 and $555 million in 2014.
2009 Annual Report 59