CVS 2011 Annual Report Download - page 66

Notes to Consolidated Financial Statements
CVS CAREMARK 64 2011 ANNUAL REPORT
The following table is a summary of the future minimum lease payments under capital and operating leases as of
December 31, 2011:
Capital Operating
in millions Leases Leases (1)
2012 $ 20 $ 2,230
2013 20 2,143
2014 20 1,936
2015 20 1,880
2016 20 1,806
Thereafter 237 17,630
Total future lease payments 337 $ 27,625
Less: imputed interest (169)
Present value of capital lease obligations $ 168
(1) Future operating lease payments have not been reduced by minimum sublease rentals of $246 million due in the future under noncancelable subleases.
The Company has recorded estimates of various assets and
liabilities arising from its participation in the Medicare Part D
program based on information in its claims management and
enrollment systems. Significant estimates arising from its par-
ticipation in this program include: (i) estimates of low-income
cost subsidy and reinsurance amounts ultimately payable
to or receivable from CMS based on a detailed claims rec-
onciliation that will occur in the following year; (ii) an esti-
mate of amounts receivable from or payable to CMS under a
risk-sharing feature of the Medicare Part D program design,
referred to as the risk corridor and (iii) estimates for claims
that have been reported and are in the process of being paid
or contested and for our estimate of claims that have been
incurred but have not yet been reported.
9 EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsored a defined contribution Employee
Stock Ownership Plan (the “ESOP”) that covered full-time
employees with at least one year of service. In 1989, the
ESOP Trust issued and sold $358 million of 20-year, 8.52%
notes, which were due and retired on December 31, 2008
(the “ESOP Notes”). The proceeds from the ESOP Notes
were used to purchase 7 million shares of Series One ESOP
Convertible Preference Stock (the “ESOP Preference Stock”)
from the Company. Since the ESOP Notes were guaranteed
by the Company, the outstanding balance was reflected as
long-term debt, and a corresponding guaranteed ESOP obli-
gation was reflected in shareholders’ equity in the consoli-
dated balance sheet.
Each share of ESOP Preference Stock had a guaranteed
minimum liquidation value of $53.45, was convertible into
4.628 shares of common stock and was entitled to receive
an annual dividend of $3.90 per share. The ESOP Trust used
The Company finances a portion of its store development
program through sale-leaseback transactions. The prop-
erties are generally sold at net book value, which gener-
ally approximates fair 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. 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 $592 million in
2011, $507 million in 2010 and $1.6 billion in 2009.
8 MEDICARE PART D
The Company offers Medicare Part D benefits through
SilverScript, Accendo and Pennsylvania Life, which have
contracted with CMS to be a PDP and, pursuant to the
Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (“MMA”), must be risk-bearing entities regulated
under state insurance laws or similar statutes.
SilverScript, Accendo and Pennsylvania Life are licensed
domestic insurance companies under the applicable laws
and regulations. Pursuant to these laws and regulations,
SilverScript, Accendo and Pennsylvania Life must file quar-
terly and annual reports with the National Association of
Insurance Commissioners (“NAIC”) and certain state regula-
tors, must maintain certain minimum amounts of capital and
surplus under a formula established by the NAIC and must,
in certain circumstances, request and receive the approval
of certain state regulators before making dividend payments
or other capital distributions to the Company. The Company
does not believe these limitations on dividends and distribu-
tions materially impact its financial position.
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