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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
CVS CAREMARK 2012 ANNUAL REPORT
38
In December 2011 and July 2012, we repurchased $958 million and $1 million of the principal amount of our Enhanced
Capital Advantaged Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance costs associated
with the early extinguishment of the ECAPS were de minimis. The remaining $41 million of outstanding ECAPS at
December฀31,฀2012฀are฀due฀in฀2062฀and฀bear฀interest฀at฀6.302%฀per฀year฀until฀June฀1,฀2012,฀at฀which฀time฀they฀will฀pay฀
interest based on a floating rate. The 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.
On฀May฀13,฀2010,฀we฀issued฀$550฀million฀of฀3.25%฀unsecured฀senior฀notes฀due฀May฀18,฀2015฀and฀issued฀$450฀million฀of฀
4.75%฀unsecured฀senior฀notes฀due฀May฀18,฀2020฀(collectively,฀the฀“2010฀Notes”)฀for฀total฀proceeds฀of฀$991฀million,฀which฀
was net of discounts and underwriting fees. The 2010 Notes pay interest semi-annually and may be redeemed, in whole
at any time, or in part from time to time, at the Company’s option at a defined redemption price plus accrued and unpaid
interest to the redemption date. The net proceeds of the 2010 Notes were used to repay a portion of the Company’s
outstanding commercial paper borrowings, certain other corporate debt and for general corporate purposes.
Our backup credit facility, unsecured senior notes and ECAPS (see Note 7 to the consolidated financial statements) contain
customary restrictive financial and operating covenants.
These covenants do not include a requirement 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 financial or operating flexibility.
As of December 31, 2012 and 2011, we had no outstanding derivative financial instruments.
Debt Ratings –
As of December 31, 2012, our long-term debt was rated “Baa2” by Moody’s with a positive outlook and
“BBB+” by Standard & Poor’s with a stable outlook, and our commercial paper program was rated “P-2” by Moody’s and
“A-2” by Standard & Poor’s. In assessing our credit strength, we believe that both Moody’s and Standard & Poor’s
considered, among other things, our capital structure and financial policies as well as our consolidated balance sheet, our
historical acquisition activity and other financial information. Although we currently believe our long-term debt ratings will
remain investment 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 –
฀In฀December฀2012,฀our฀Board฀of฀Directors฀authorized฀a฀38%฀increase฀in฀our฀quarterly฀
common stock dividend to $0.225 per share. This increase equates to an annual dividend rate of $0.90 per share. In
December฀2011,฀our฀Board฀of฀Directors฀authorized฀a฀30%฀increase฀in฀our฀quarterly฀common฀stock฀dividend฀to฀$0.1625฀per฀
share. This increase equated to an annual dividend rate of $0.65 per share. On January 11, 2011, our Board of Directors
authorized฀a฀43%฀increase฀in฀our฀quarterly฀common฀stock฀dividend฀to฀$0.125฀per฀share.฀This฀increase฀equated฀to฀an฀
annual฀dividend฀rate฀of฀$0.50฀per฀share.฀In฀January฀2010,฀our฀Board฀of฀Directors฀authorized฀a฀15%฀increase฀in฀our฀quarterly฀
common stock dividend to $0.0875 per share. This increase equated to an annual dividend rate of $0.35 per share.
Off-Balance Sheet Arrangements
In connection with executing operating leases, we provide a guarantee of the lease payments. We also finance 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 accounting principles, our operating leases are
not reflected on our consolidated balance sheets.