CVS 1998 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... with easy access to important corporate information. The Investor Information portion of our Web site also includes a feature that enables interested parties to receive an e-mail notification of new information on the site, such as news releases, calendar updates and SEC filings. The site also...

  • Page 3
    Financial Highlights In millions, except per share data 1998 1997 % Change Sales Operating profit* Earnings from continuing operations* Diluted earnings per common share from continuing operations* Closing stock price per common share Total market capitalization $15,273.6 940.5 510.1 1.26 55 21,...

  • Page 4
    ... Ryan visit the CVS distribution center in Woonsocket, Rhode Island-one of ten distribution centers throughout the country that serve over 4,100 stores in 24 states and the District of Columbia. • We delivered a 73% total return to CVS shareholders in 1998. • Our market capitalization increased...

  • Page 5
    ... and maintained our focus during a year of tremendous activity for CVS, as we successfully integrated our acquisitions of Revco D.S., Inc. and Arbor Drugs, Inc. Record Sales and Earnings Lead to Dramatic Growth in Shareholder Value Our commitment to serving our customers has led to results that are...

  • Page 6
    ... at year-end 1998. Reflecting the significant increases in CVS' stock price, our Board of Directors approved, on May 13, 1998, a 2-for1 stock split, effective June 15, 1998. Also at that time, the Board approved an increase in CVS' annual cash dividend to $0.23 per share (on a post-split basis...

  • Page 7
    ... managed care as the first line of defense for healthcare, as well as the large number of successful new prescription drugs, bodes well for a growing demand for pharmacy services. Although we are proud of our past accomplishments, we continually search for new and innovative ways to make our stores...

  • Page 8
    ... our new transfer agent, The Bank of New York, offers a Dividend Reinvestment and Direct Stock Purchase Plan. Further, we have re-designed our Web site to provide easy access to more information about CVS. We are in the midst of the most significant growth period in the history of our company. 1998...

  • Page 9
    ... just over 18 months after its debut, Rapid Refill now accounts for 50% of refills. In addition to providing an added convenience for our customers, one of the most important benefits of Rapid Refill CVS pharmacies feature our state-of-the-art Rx2000 pharmacy system, which reduces the time it takes...

  • Page 10
    ... local markets and our advanced technology systems enable us to provide unique prescription benefit management (PBM) services. This has made us a partner of choice for many managed care organizations. PharmaCare®, our pharmacy benefit management company, was formed in 1994 and, since that time, has...

  • Page 11
    ... local communities they serve-will be key factors contributing to CVS' continued success. We continually look for ways to make our product assortments and services more appealing to customers. In the beauty category, for example, CVS was the first drugstore chain to launch a money-back guarantee on...

  • Page 12
    ... food products. The Gold Emblem name signifies our commitment to superior quality and exceptional value. Just as in our pharmacy business, investments in One-hour photo labs are just one of the ways we offer value to our customers. We plan to have one-hour labs in 2000 stores by year-end 1999...

  • Page 13
    ... community involvement programs. Our charitable giving activities demonstrate the core values of our business: teamwork, openness, and willingness to embrace change. Whether it's a team of CVS volunteers walking to raise money for the American Cancer Society, a pharmacist who spends time each week...

  • Page 14
    .... Care about communities CVS ended the year with 4,122 stores in 24 states and the District of Columbia. It is the leading drugstore chain in the Northeast, Mid-Atlantic, Midwest, and Southeast. CVS Store Count by State Alabama Connecticut Delaware Florida Georgia Illinois Indiana Kentucky Maine...

  • Page 15
    ... Auditors' Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Five-Year Financial Summary Officers, Directors and Shareholder Information 14 20...

  • Page 16
    ... always been owned by CVS. The merger with Arbor made us the market share leader in metropolitan Detroit, the nation's fourth largest retail drugstore market, and strengthened our position as the nation's top drugstore retailer in terms of store count and retail prescriptions dispensed. We believe...

  • Page 17
    ...first line of defense for healthcare and the introduction of a number of successful new prescription drugs also contributed to the growing demand for pharmacy services. • Our front store sales growth was driven by solid performance in categories such as cosmetics, private label, seasonal, vitamins...

  • Page 18
    ... on third party sales has continued to decline largely due to the efforts of managed care organizations and other pharmacy benefit managers to reduce prescription drug costs. To address this trend, we have dropped a number of third party programs that fell below our minimum profitability standards...

  • Page 19
    ...lines of credit at a weighted average interest rate of 4.8%. Capital Resources ~ With a total debt to capitalization ratio of 25.4% at December 31, 1998, we are pleased to report that our financial condition remained strong at year-end. Although there can be no assurance and assuming market interest...

  • Page 20
    ... and wholesalers conspired to fix and/or stabilize the price of the prescription drugs sold to retail pharmacies in violation of the Sherman Antitrust Act. In this lawsuit, CVS is a member of the plaintiff class. • The second lawsuit was filed by individual chain pharmacies, including Revco, as...

  • Page 21
    ...we stand on this important matter. Information Technology ("IT") Systems ~ We have completed the assessment phase for each of our critical information technology systems. Our IT business systems include point-of-sale, Rx2000 pharmacy, supply chain management, financial accounting and other corporate...

  • Page 22
    ... periodically with management, internal auditors and the independent auditors to review matters relating to the Company's financial reporting, the adequacy of internal accounting controls and the scope and results of audit work. The internal auditors and independent auditors have free access to the...

  • Page 23
    ... Independent Auditors' Report Board of Directors and Shareholders CVS Corporation: We have audited the accompanying consolidated balance sheets of CVS Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity, and...

  • Page 24
    ...Earnings (loss) from discontinued operations Extraordinary item, net of tax benefit Net earnings Weighted average common shares outstanding Dividends per common share See accompanying notes to consolidated financial statements. $ $ $ $ 1998 $ 15,273.6 11,144.4 4,129.2 2,949.0 249.7 158.3 3,357.0 772...

  • Page 25
    1998 Financial Report Consolidated Balance Sheets In millions, except per share amounts Assets: Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property and equipment, net Goodwill, net Deferred charges and other assets Total assets ...

  • Page 26
    ... obligation End of year Capital surplus: Beginning of year Conversion of preference stock Stock options exercised and awards under stock plans Effect of change in par value Other End of year Retained earnings: Beginning of year Net earnings Dividends: Preference stock, net of tax benefit Redeemable...

  • Page 27
    ...cash Proceeds from sale of businesses and other property and equipment Proceeds from sale of investments Net cash (used in) provided by investing activities Cash flows from financing activities: Additions to (reductions in) short-term borrowings Proceeds from exercise of stock options (Reductions in...

  • Page 28
    ... fair value. The Company also utilizes letters of credit to guarantee certain foreign purchases. As of December 31, 1998 and 1997, approximately $62.4 million and $58.2 million, respectively, was outstanding under letters of credit. Property and equipment ~ Depreciation of property and equipment is...

  • Page 29
    1998 Financial Report Store opening and closing costs ~ New store opening costs are charged directly to expense when incurred. When the Company closes a store, the estimated unrecoverable costs, including the remaining lease obligation, are charged to expense in the year of the closing. Advertising...

  • Page 30
    ...to purchase 6.6 million shares of CVS common stock. The CVS/Arbor Merger and CVS/Revco Merger (collectively, the "Mergers") constituted tax-free reorganizations and have been accounted for as pooling of interests under Accounting Principles Board Opinion No. 16, "Accounting for Business Combinations...

  • Page 31
    ... include noncancelable lease commitments. These exit plans did not provide future benefit to the retained stores or corporate facilities. Following is a summary of the significant components of the above charges: CVS/Arbor Charge Utilized to Date Transfer $ (15.9) $ 0.9 CVS/Revco and Big B Charges...

  • Page 32
    ... 31, 1998 and 1997. The Company was not obligated under any formal or informal compensating balance agreements. During the second quarter of 1997, the Company extinguished $865.7 million of the debt it absorbed as part of the CVS/Revco Merger using cash on hand and commercial paper borrowings...

  • Page 33
    ...elect to receive shares of common stock in lieu of cash compensation. Eligible Directors may also elect to defer compensation payable in common stock until their service as a director concludes. The 1996 DSP replaced the Company's 1989 Directors Stock Option Plan. As of December 31, 1998, there were...

  • Page 34
    CVS Corporation Notes to Consolidated Financial Statements (continued) Following is a summary of the fixed stock option activity under the 1997 ICP , the Preexisting Plans and the pre-merger plans of Arbor and Revco for the years ended December 31: 1998 Weighted Average Shares Exercise Price 1997...

  • Page 35
    ... Change in plan assets: Fair value at beginning of year Actual return on plan assets Company contributions Benefits paid Fair value at end of year(1) Funded status: Funded status Unrecognized prior service cost Unrecognized net loss (gain) Accrued pension costs Weighted average assumptions: Discount...

  • Page 36
    ...436.6 $1,111.3 $1,168.6 Following is a summary of the Company's non-cash financing activities for the years ended December 31: In millions Fair value of assets acquired Cash paid Liabilities assumed Equity securities or notes received from sale of businesses 1998 $ 62.2 62.2 $ - $ - 1997 52.0 1996...

  • Page 37
    ... 1996: Current Deferred Federal Following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31: In millions Deferred tax assets: Employee benefits Other assets Total deferred tax assets Deferred tax liabilities: Property and equipment...

  • Page 38
    ... that was recorded when Rite Aid Corporation withdrew its tender offer to acquire Revco. This event took place in 1996 before the CVS/Revco Merger. The merger and restructuring charges are not considered when management assesses the stand-alone performance of the Company's business segments. 36

  • Page 39
    ...earnings per common share for the years ended December 31: Numerator for earnings per common share calculation: Earnings from continuing operations before extraordinary item Preference dividends, net of tax benefit Earnings from continuing operations available to common shareholders, basic Earnings...

  • Page 40
    ... Net earnings (loss) per common share: 1998: Basic Diluted 1997: Basic Diluted Market price per common share (New York Stock Exchange): 1998: High Low 1997: High Low Dividends declared per common share: 1998 1997 Number of registered common shareholders at year-end: 1998 $ 132.0 92.1 $ 132.0 92...

  • Page 41
    ... on the Saturday closest to May 31. In recording the business combinations, Arbor's and Revco's historical stand-alone consolidated financial statements have been restated to a December 31 year-end, to conform with CVS' fiscal year-end. As permitted by the rules and regulations of the Securities and...

  • Page 42
    ...The Bank of New York at (877) 287-7526 Information Resources The Company's Annual Report on Form 10-K will be sent without charge to any shareholder upon request by contacting: Nancy R. Christal Vice President - Investor Relations CVS Corporation 670 White Plains Road - Suite 210 Scarsdale, NY 10583...

  • Page 43
    ... retire from his position as Chairman of the Board of CVS Corporation. Since co-founding the company more than 35 years ago, Stanley has been a vital part of CVS' success. Stanley Goldstein, Stan, his brother Sid, and a partner, Ralph Hoagland, Sidney Goldstein and Ralph opened the first CVS store...

  • Page 44
    Care that touches everyone ...one at a time. CVS Corporation One CVS Drive | Woonsocket, RI 02895