CVS 2014 Annual Report Download - page 41

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2014 Annual Report
These covenants do not include a requirement for the acceleration of our debt maturities in the event of a down-
grade 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, 2014 and 2013, we had no outstanding derivative financial instruments.
Debt Ratings — As of December 31, 2014, our long-term debt was rated “Baa1” by Moody’s with a stable 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 2014, our Board of Directors authorized a 27% increase in our
quarterly common stock dividend to $0.35 per share effective in 2015. This increase equates to an annual dividend
rate of $1.40 per share. In December 2013, our Board of Directors authorized a 22% increase in our quarterly
common stock dividend to $0.275 per share. This increase equated to an annual dividend rate of $1.10 per share.
In December 2012, our Board of Directors authorized a 38% increase in our quarterly common stock dividend to
$0.225 per share. This increase equated to an annual dividend rate of $0.90 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 generally 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.
Between 1991 and 1997, we sold or spun off a number of subsidiaries, including Bob’s Stores, Linens ‘n Things,
Marshalls, Kay-Bee Toys, This End Up and Footstar. In many cases, when a former subsidiary leased a store,
the Company provided a guarantee of the store’s lease obligations. When the subsidiaries were disposed of, the
Company’s guarantees remained in place, although each initial purchaser agreed to indemnify the Company for
any lease obligations the Company was required to satisfy. If any of the purchasers or any of the former subsidiaries
were to become insolvent and failed to make the required payments under a store lease, the Company could be
required to satisfy these obligations.
As of December 31, 2014, we guaranteed approximately 72 such store leases (excluding the lease guarantees
related to Linens ‘n Things), with the maximum remaining lease term extending through 2026. Management
believes the ultimate disposition of any of the remaining lease guarantees will not have a material adverse effect
on the Company’s consolidated financial condition or future cash flows. Please see “Loss from discontinued
operations” previously in this document for further information regarding our guarantee of certain Linens ‘n Things’
store lease obligations.