-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TD9bL4xRvGV2wE/xGMODkoN1dlMGlhamorg5x21lItyOkI0ug6t20RAO/XsAPdvE P7vHgdgNnUfDelbjlmVTJQ== 0000927016-02-003918.txt : 20020809 0000927016-02-003918.hdr.sgml : 20020809 20020809162206 ACCESSION NUMBER: 0000927016-02-003918 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020629 FILED AS OF DATE: 20020809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CVS CORP CENTRAL INDEX KEY: 0000064803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 050494040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01011 FILM NUMBER: 02725018 BUSINESS ADDRESS: STREET 1: ONE CVS DR. CITY: WOONSOCKET STATE: RI ZIP: 02895- BUSINESS PHONE: 4017651500 MAIL ADDRESS: STREET 1: ONE CVS DR. CITY: WOONSOCKET STATE: RI ZIP: 02895- FORMER COMPANY: FORMER CONFORMED NAME: MELVILLE SHOE CORP DATE OF NAME CHANGE: 19760630 FORMER COMPANY: FORMER CONFORMED NAME: MELVILLE CORP DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended Commission File Number June 29, 2002 001-01011 CVS CORPORATION ---------------- (Exact name of registrant as specified in its charter) Delaware 05-0494040 - ------------------------ --------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) One CVS Drive, Woonsocket, Rhode Island 02895 --------------------------------------------- (Address of principal executive offices) Telephone: (401) 765-1500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ ------- Common Stock, $0.01 par value, issued and outstanding at August 6, 2002: 392,595,000 shares ================================================================================ INDEX
Page Part I Item 1. Financial Statements Consolidated Condensed Statements of Operations - Thirteen and Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001 2 Consolidated Condensed Balance Sheets - As of June 29, 2002 and December 29, 2001 3 Consolidated Condensed Statements of Cash Flows - Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001 4 Notes to Consolidated Condensed Financial Statements 5 Independent Auditors' Review Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 Signature Page 19
1 Part I Item 1 CVS Corporation Consolidated Condensed Statements of Operations (Unaudited)
===================================================================================================================== 13 Weeks Ended 26 Weeks Ended June 29, June 30, June 29, June 30, In millions, except per share amounts 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------------------- Net sales $ 5,989.5 $ 5,494.2 $ 11,960.2 $ 10,880.1 Cost of goods sold, buying and warehousing costs 4,508.4 4,035.8 8,985.4 7,968.3 - --------------------------------------------------------------------------------------------------------------------- Gross margin 1,481.1 1,458.4 2,974.8 2,911.8 Selling, general and administrative expenses 1,104.0 1,036.2 2,226.2 2,029.6 Depreciation and amortization 78.8 80.2 153.8 158.8 - --------------------------------------------------------------------------------------------------------------------- Total operating expenses 1,182.8 1,116.4 2,380.0 2,188.4 - --------------------------------------------------------------------------------------------------------------------- Operating profit 298.3 342.0 594.8 723.4 Interest expense, net 13.8 15.1 26.9 30.8 - --------------------------------------------------------------------------------------------------------------------- Earnings before income tax provision 284.5 326.9 567.9 692.6 Income tax provision 108.1 128.9 215.8 272.9 - --------------------------------------------------------------------------------------------------------------------- Net earnings 176.4 198.0 352.1 419.7 Preference dividends, net of income tax benefit 3.7 3.7 7.4 7.4 - --------------------------------------------------------------------------------------------------------------------- Net earnings available to common shareholders $ 172.7 $ 194.3 $ 344.7 $ 412.3 ===================================================================================================================== Basic earnings per common share: Net earnings $ 0.44 $ 0.49 $ 0.88 $ 1.05 - --------------------------------------------------------------------------------------------------------------------- Weighted average basic common shares outstanding 392.0 393.5 391.8 393.2 - --------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share: Net earnings $ 0.43 $ 0.48 $ 0.86 $ 1.02 - --------------------------------------------------------------------------------------------------------------------- Weighted average diluted common shares outstanding 406.1 411.1 405.3 411.2 ===================================================================================================================== Dividends declared per common share $ 0.0575 $ 0.0575 $ 0.1150 $ 0.1150 =====================================================================================================================
See accompanying notes to consolidated condensed financial statements. 2 Part I Item 1 CVS Corporation Consolidated Condensed Balance Sheets
===================================================================================================================== (Unaudited) June 29, December 29, In millions, except share and per share amounts 2002 2001 - --------------------------------------------------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 333.3 $ 236.3 Accounts receivable, net 1,004.1 966.2 Inventories 3,876.0 3,918.6 Deferred income taxes 204.5 242.6 Other current assets 43.6 46.2 - --------------------------------------------------------------------------------------------------------------------- Total current assets 5,461.5 5,409.9 Property and equipment, net 2,152.2 1,847.3 Goodwill, net 878.1 874.9 Intangible assets, net 319.5 318.0 Other assets 184.2 178.1 - --------------------------------------------------------------------------------------------------------------------- Total assets $ 8,995.5 $ 8,628.2 ===================================================================================================================== Liabilities: Accounts payable $ 1,335.2 $ 1,535.8 Accrued expenses 1,263.0 1,267.9 Short-term borrowings 488.4 235.8 Current portion of long-term debt 26.3 26.4 - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 3,112.9 3,065.9 Long-term debt 807.9 810.4 Deferred income taxes 35.3 35.3 Other long-term liabilities 146.7 149.7 Shareholders' equity: Preference stock, series one ESOP convertible, par value $1.00: authorized 50,000,000 shares; issued and outstanding 4,745,000 shares at June 29, 2002 and 4,887,000 shares at December 29, 2001 253.6 261.2 Common stock, par value $0.01: authorized 1,000,000,000 shares; issued 408,901,000 shares at June 29, 2002 and 408,532,000 shares at December 29, 2001 4.1 4.1 Treasury stock, at cost: 16,826,000 shares at June 29, 2002 and 17,645,000 shares at December 29, 2001 (487.2) (510.8) Guaranteed ESOP obligation (219.9) (219.9) Capital surplus 1,542.4 1,539.6 Retained earnings 3,799.7 3,492.7 - --------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 4,892.7 4,566.9 - --------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 8,995.5 $ 8,628.2 =====================================================================================================================
See accompanying notes to consolidated condensed financial statements. 3 Part I Item 1 CVS Corporation Consolidated Condensed Statements of Cash Flows (Unaudited)
======================================================================================================== 26 Weeks Ended June 29, June 30, In millions 2002 2001 - -------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 352.1 $ 419.7 Adjustments required to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 153.8 158.8 Deferred income taxes and other noncash items 49.8 2.5 Change in operating assets and liabilities, providing/(requiring) cash, net of effects from acquisitions: Accounts receivable, net (37.9) (109.6) Inventories 42.6 (362.4) Other current assets 4.3 (4.3) Other assets (8.7) (3.8) Accounts payable (200.6) 72.2 Accrued expenses (4.1) (47.4) Other long-term liabilities (3.0) 1.3 - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 348.3 127.0 ======================================================================================================== Cash flows from investing activities: Additions to property and equipment (590.3) (275.8) Proceeds from sale-leaseback transactions 135.5 -- Acquisitions (net of cash acquired) and investments (32.5) (99.0) Proceeds from sale or disposal of assets 13.4 11.3 - -------------------------------------------------------------------------------------------------------- Net cash used in investing activities (473.9) (363.5) ======================================================================================================== Cash flow from financing activities: Additions to (reductions in) short-term borrowings 252.6 (110.1) Proceeds from exercise of stock options 17.7 31.9 (Reductions in) additions to long-term debt (2.7) 296.4 Dividends paid (45.0) (45.2) - -------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 222.6 173.0 ======================================================================================================== Net increase (decrease) in cash and cash equivalents 97.0 (63.5) Cash and cash equivalents at beginning of period 236.3 337.3 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 333.3 $ 273.8 ========================================================================================================
See accompanying notes to consolidated condensed financial statements. 4 Part I Item 1 CVS Corporation Notes to Consolidated Condensed Financial Statements (Unaudited) Note 1 The accompanying consolidated condensed financial statements of CVS Corporation ("CVS" or the "Company") have been prepared without audit, in accordance with the rules and regulations of the Securities and Exchange Commission. In accordance with such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001. In the opinion of management, the accompanying consolidated condensed financial statements include all adjustments (consisting only of normal recurring adjustments) which are necessary to present a fair statement of the Company's results for the interim periods presented. Because of the influence of various factors on the Company's operations, including certain holidays and other seasonal influences, net earnings for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of earnings for the full fiscal year. Certain reclassifications have been made to prior year's amounts to conform to the current period presentation. Note 2 The Company currently operates two business segments, Retail Pharmacy and Pharmacy Benefit Management ("PBM"). The Company's business segments are operating units that offer different products and services, and require distinct technology and marketing strategies. As of June 29, 2002, the Retail Pharmacy segment included 3,969 retail drugstores and the Company's online retail website, CVS.com. The retail drugstores are located in 26 states and the District of Columbia, operating under the CVS or CVS/pharmacy name. The Retail Pharmacy segment is the Company's only reportable segment. The PBM segment provides a full range of prescription benefit management services to managed care and other organizations. These services include plan design and administration, formulary management, mail order pharmacy services, claims processing and generic substitution. The PBM segment also includes the Company's specialty pharmacy business which focuses on supporting individuals that require complex and expensive drug therapies. The PBM segment operates under the PharmaCare Management Services name, while the specialty pharmacy mail order facilities and 33 retail pharmacies, located in 20 states and the District of Columbia, operate under the CVS ProCare name. 5 Part I Item 1 CVS Corporation Notes to Consolidated Condensed Financial Statements (Unaudited) Following is a reconciliation of the Company's business segments to the consolidated condensed financial statements as of and for the thirteen and twenty-six weeks ended June 29, 2002 and June 30, 2001: ================================================================================ Retail Pharmacy All Other Consolidated In millions Segment Segments Totals - -------------------------------------------------------------------------------- 13 weeks ended: June 29, 2002: Net sales $ 5,715.1 $ 274.4 $ 5,989.5 Operating profit 280.1 18.2 298.3 June 30, 2001: Net sales $ 5,284.2 $ 210.0 $ 5,494.2 Operating profit 332.3 9.7 342.0 ================================================================================ 26 weeks ended: June 29, 2002: Net sales $ 11,408.0 $ 552.2 $ 11,960.2 Operating profit 563.2 31.6 594.8 June 30, 2001: Net sales $ 10,451.9 $ 428.2 $ 10,880.1 Operating profit 705.6 17.8 723.4 ================================================================================ Total assets: June 29, 2002 $ 8,479.7 $ 515.8 $ 8,995.5 December 29, 2001 8,123.7 504.5 8,628.2 ================================================================================ Note 3 During the fourth quarter of 2001, management approved an Action Plan, which resulted from a comprehensive business review designed to streamline operations and enhance operating efficiencies. Following is a summary of the specific initiatives contained in the Action Plan: 1. 229 CVS/pharmacy and CVS ProCare store locations (the "Stores") would be closed by no later than March 2002. Since these locations were leased facilities, management planned to either return the premises to the respective landlords at the conclusion of the current lease term or negotiate an early termination of the contractual obligations. As of March 31, 2002, all of the Stores were closed. 2. The Henderson, North Carolina distribution center (the "D.C.") would be closed and its operations would be transferred to the Company's remaining distribution centers by no later than May 2002. Since this location was owned, management planned to sell the property upon closure. The D.C. was closed in April 2002 and was sold in May 2002. 3. The Columbus, Ohio mail order facility (the "Mail Facility") would be closed and its operations would be transferred to the Company's Pittsburgh, Pennsylvania mail order facility by no later than April 2002. Since this location was a leased facility, management planned to either return the premises to the landlord at the conclusion of the lease or negotiate an early termination of the contractual obligation. The Mail Facility was closed in March 2002. 6 Part I Item 1 CVS Corporation Notes to Consolidated Condensed Financial Statements (Unaudited) 4. Two satellite office facilities (the "Satellite Facilities") would be closed and their operations would be consolidated into the Company's Woonsocket, Rhode Island corporate headquarters by no later than December 2001. Since these locations were leased facilities, management planned to either return the premises to the landlords at the conclusion of the leases or negotiate an early termination of the contractual obligations. The Satellite Facilities were closed in December 2001. 5. Approximately 1,500 managerial, administrative and store employees in the Company's Woonsocket, Rhode Island corporate headquarters; Columbus Mail Facility; Henderson D.C. and the Stores would be terminated. As of April 30, 2002, all of these employees had been terminated. In accordance with, Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges," the Company recorded a $346.8 million pre-tax charge ($226.9 million after-tax) to operating expenses during the fourth quarter of 2001 for restructuring and asset impairment costs associated with the Action Plan. In accordance with Accounting Research Bulletin No. 43, "Restatement and Revision of Accounting Research Bulletins," the Company also recorded a $5.7 million pre-tax charge ($3.6 million after-tax) to cost of goods sold during the fourth quarter of 2001 to reflect the markdown of certain inventory contained in the Stores to its net realizable value. In total, the restructuring and asset impairment charge was $352.5 million pre-tax, or $230.5 million after-tax (the "Restructuring Charge"). Following is a reconciliation of the beginning and ending liability balances associated with the Restructuring Charge as of the respective balance sheet dates:
- ------------------------------------------------------------------------------------------------------------ Noncancelable Lease Employee In millions Obligations/(1)/ Asset Write-Offs Severance & Benefits Total - ------------------------------------------------------------------------------------------------------------ Restructuring Charge $ 227.4 $ 105.6 $ 19.5 $ 352.5 Utilized - Cash -- -- (2.1) (2.1) Utilized - Noncash -- (105.6) -- (105.6) - ------------------------------------------------------------------------------------------------------------ Balance at 12/29/01 $ 227.4 $ -- $ 17.4 $ 244.8 Utilized - Cash (18.4) -- (12.1) (30.5) - ------------------------------------------------------------------------------------------------------------ Balance at 06/29/02/(2)/ $ 209.0 $ -- $ 5.3 $ 214.3 ============================================================================================================
(1) Noncancelable lease obligations extend through 2024. (2) The Company believes that the reserve balances as of June 29, 2002 are adequate to cover the remaining liabilities associated with the Action Plan. Note 4 Following are the components of net interest expense:
- ------------------------------------------------------------------------------------------------- 13 weeks ended 26 weeks ended In millions June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001 - ------------------------------------------------------------------------------------------------- Interest expense $ 14.7 $ 16.1 $ 29.2 $ 33.1 Interest income (0.9) (1.0) (2.3) (2.3) - ------------------------------------------------------------------------------------------------- Interest expense, net $ 13.8 $ 15.1 $ 26.9 $ 30.8 =================================================================================================
7 Part I Item 1 CVS Corporation Notes to Consolidated Condensed Financial Statements (Unaudited) Note 5 Effective at the beginning of fiscal 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." As a result of the adoption, goodwill and other indefinite-lived intangible assets are no longer being amortized, but are subject to annual impairment reviews, or more frequently if events or circumstances indicate there may be an impairment. During the second quarter of 2002, the company completed the implementation impairment review as required. The review concluded there was no impairment of goodwill at the time of implementation. The impact of discontinuing the amortization of goodwill and indefinite-lived intangible assets on net earnings for the thirteen and twenty-six weeks ended June 30, 2001 would have been $7.4 million or $0.02 per diluted share and $14.1 million or $0.03 per diluted share, respectively. Excluding goodwill amortization, adjusted net earnings for the thirteen weeks ended June 30, 2001 would have been $205.4 million or $0.50 per diluted share. Adjusted net earnings for the twenty-six weeks ended June 30, 2001 would have been $433.8 million or $1.05 per diluted share. The carrying amount of goodwill as of June 29, 2002 was $878.1 million. The change in goodwill during the twenty-six weeks ended June 29, 2002 was primarily due to store acquisitions. There was no impairment of goodwill during the quarter. Intangible assets other than goodwill are separated into two categories, finite-lived and indefinite-lived. Intangible assets with finite useful lives are amortized over their estimated useful life, while intangible assets with indefinite useful lives are not amortized. The Company currently has no intangible assets with indefinite lives. Following is a summary of the Company's amortizable intangible assets as of the respective balance sheet dates:
- ------------------------------------------------------------------------------------------------------------------ As of June 29, 2002 As of December 29, 2001 -------------------------------------- --------------------------------------- Gross Accumulated Gross Accumulated In millions Carrying Amount Amortization Carrying Amount Amortization - ------------------------------------------------------------------------------------------------------------------ Customer lists and Covenants not to compete $ 423.6 $ (172.4) $ 379.7 $ (135.1) Favorable leases and Other 133.9 (65.6) 138.8 (65.4) - ------------------------------------------------------------------------------------------------------------------ $ 557.5 $ (238.0) $ 518.5 $ (200.5) ==================================================================================================================
The amortization expense for these intangible assets for the thirteen and twenty-six week periods ended June 29, 2002 was $12.6 million and $24.7 million, respectively. The anticipated annual amortization expense for these intangible assets is $52.1 million, $47.6 million, $40.3 million, $35.1 million, $33.2 million and $31.4 million in 2002, 2003, 2004, 2005, 2006 and 2007, respectively. 8 Part I Item 1 CVS Corporation Notes to Consolidated Condensed Financial Statements (Unaudited) Note 6 Basic earnings per common share is computed by dividing: (i) net earnings, after deducting the after-tax dividends on the ESOP preference stock, by (ii) the weighted average number of common shares outstanding during the period (the "Basic Shares"). When computing diluted earnings per common share, the Company assumes that the ESOP preference stock is converted into common stock and all dilutive stock options are exercised. After the assumed ESOP preference stock conversion, the ESOP Trust would hold common stock rather than ESOP preference stock and would receive common stock dividends (currently $0.23 per share) rather than ESOP preference stock dividends (currently $3.90 per share). Since the ESOP Trust uses the dividends it receives to service its debt, the Company would have to increase its contribution to the ESOP Trust to compensate it for the lower dividends. This additional contribution would reduce the Company's net earnings, which in turn, would reduce the amounts that would have to be accrued under the Company's incentive compensation plans. Diluted earnings per common share is computed by dividing: (i) net earnings, after accounting for the difference between the dividends on the ESOP preference stock and common stock and after making adjustments for the incentive compensation plans by (ii) Basic Shares plus the additional shares that would be issued assuming that all dilutive stock options are exercised and the ESOP preference stock is converted into common stock. Following is a reconciliation of basic and diluted earnings per common share for the thirteen and twenty-six week periods listed below:
- ------------------------------------------------------------------------------------------------------------------- 13 weeks ended 26 weeks ended June 29, June 30, June 29, June 30, In millions, except per share amounts 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------------- Numerator for earnings per common share calculation: Net earnings $ 176.4 $ 198.0 $ 352.1 $ 419.7 Preference dividends, net of income tax benefit (3.7) (3.7) (7.4) (7.4) - ------------------------------------------------------------------------------------------------------------------- Net earnings available to common shareholders, basic $ 172.7 $ 194.3 $ 344.7 $ 412.3 =================================================================================================================== Net earnings $ 176.4 $ 198.0 $ 352.1 $ 419.7 Dilutive earnings adjustments (1.7) (0.5) (3.4) (1.0) - ------------------------------------------------------------------------------------------------------------------- Net earnings available to common shareholders, diluted $ 174.7 $ 197.5 $ 348.7 $ 418.7 =================================================================================================================== Denominator for earnings per common share calculation: Weighted average common shares, basic 392.0 393.5 391.8 393.2 Effect of dilutive securities: ESOP preference stock 10.7 10.7 10.7 10.7 Stock options 3.4 6.9 2.8 7.3 - ------------------------------------------------------------------------------------------------------------------- Weighted average common shares, diluted 406.1 411.1 405.3 411.2 =================================================================================================================== Basic earnings per common share $ 0.44 $ 0.49 $ 0.88 $ 1.05 - ------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ 0.43 $ 0.48 $ 0.86 $ 1.02 ===================================================================================================================
9 Part I Independent Auditors' Review Report The Board of Directors and Shareholders CVS Corporation: We have reviewed the consolidated condensed balance sheet of CVS Corporation and subsidiaries as of June 29, 2002, and the related consolidated condensed statements of operations and cash flows for the thirteen and twenty-six week periods ended June 29, 2002 and June 30, 2001. These consolidated condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of CVS Corporation and subsidiaries as of December 29, 2001 and the related consolidated statements of operations, shareholders' equity, and cash flows for the fifty-two week period then ended (not presented herein); and in our report dated February 1, 2002 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 29, 2001, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP - ------------ KPMG LLP Providence, Rhode Island July 26, 2002 10 Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The following discussion explains the material changes in our results of operations for the thirteen and twenty-six weeks ended June 29, 2002 and the significant developments affecting our financial condition since December 29, 2001. We strongly recommend that you read our audited consolidated financial statements and footnotes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2001. Results of Operations Thirteen and Twenty Six-Weeks Ended June 29, 2002 versus June 30, 2001 Net sales ~ The following table summarizes our sales performance for the respective periods:
- --------------------------------------------------------------------------------------------------------- 13 weeks ended 26 weeks ended June 29, June 30, June 29, June 30, 2002 2001 2002 2001 - --------------------------------------------------------------------------------------------------------- Net sales (in billions) $ 6.0 $ 5.5 $ 12.0 $ 10.9 Net sales increase: Total 9.0% 11.2% 9.9% 12.4% Pharmacy 12.0% 15.9% 11.8% 17.5% Front Store 3.2% 2.9% 6.1% 3.3% Same store sales increase: Total 8.6% 8.3% 9.4% 9.8% Pharmacy 12.3% 13.2% 12.0% 15.3% Front Store 1.7% 0.1% 4.4% 0.5% Pharmacy percentage of total sales 67.9% 66.0% 67.7% 66.5% Third party percentage of pharmacy sales 91.5% 90.9% 91.9% 90.6% - ---------------------------------------------------------------------------------------------------------
As you review our sales performance, we believe you should consider the following important information: . Our pharmacy sales growth continued to benefit from our ability to attract and retain managed care customers and favorable industry trends. These trends include an aging American population; many "baby boomers" are now in their fifties and are consuming a greater number of prescription drugs. The increased use of pharmaceuticals as the first line of defense for healthcare also contributed to the growing demand for pharmacy services. . Pharmacy sales were negatively impacted due to recent generic drug introductions, which are being substituted for higher priced brand named drugs. Excluding the recent generic drug introductions, we estimate, total same store sales growth for the second quarter of 2002 would have been approximately 100 basis points higher, while pharmacy same store sales growth would have been approximately 150 basis points higher. For the first six months of 2002, we estimate total and pharmacy same store sales growth would have been approximately 75 basis points and 110 basis points higher, respectively. . Front store sales for the thirteen weeks ended June 29, 2002 were negatively impacted by an early Easter (March 31st this year versus April 15th last year), which shifted holiday sales from the second quarter into the first quarter. Excluding the impact of the Easter shift, we estimate total same store sales growth for the second quarter of 2002 would have been approximately 80 basis points higher, while front store same store sales growth would have been approximately 240 basis points higher. The Easter shift had no impact on the first six months of 2002. 11 Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . Front store sales benefited from increased promotional activity in response to the competitive and economic environment. During the remainder of 2002, we will continue to actively monitor competitive market conditions and will adjust our promotional activity accordingly. . Total sales were negatively impacted by the 229 stores closed during the first quarter of 2002 as part of the Action Plan. We estimate that the impact of the store closings, net of sales which we believe transferred to our remaining stores, lowered our total sales growth by approximately 120 basis points for the second quarter of 2002 and approximately 105 basis points for the first six months of 2002. However, we believe the sales which transferred to our remaining stores benefited total same store sales growth by approximately 65 basis points for the second quarter of 2002 and approximately 60 basis points for the first six months of 2002. . Total sales also continued to benefit from our active relocation program, which seeks to move our existing shopping center stores to larger, more convenient, freestanding locations. Historically, we have achieved significant improvements in customer count and net sales when we do this. Although the number of annual relocations has decreased, our relocation strategy remains an important component of our overall growth strategy, as only 45% of our existing stores were freestanding as of June 29, 2002. Our current long-term expectation is to have 70 to 80% of our stores located in freestanding locations. We cannot, however, guarantee that we will achieve this level or that future store relocations will deliver the same positive results as those historically achieved. Please read the "Cautionary Statement Concerning Forward-Looking Statements" section below. Gross margin for the second quarter of 2002 increased $22.7 million (or 1.6%) to $1,481.1 million, or 24.7% of net sales, compared to $1,458.4 million, or 26.5% of net sales in the second quarter of 2001. Gross margin for the first six months of 2002 increased $63.0 million (or 2.2%) to $3.0 billion, or 24.9% of net sales, compared to $2.9 billion, or 26.8% of net sales in the first six months of 2001. Why has our gross margin rate been declining? . Sales to customers covered by third party insurance programs have continued to increase and, thus, have become a larger part of our total pharmacy business. On average, our gross margin on third party pharmacy sales is lower than our gross margin on cash pharmacy sales. Third party prescription sales for the second quarter and first six months of 2002 were 91.5% and 91.9%, respectively, of pharmacy sales, versus 90.9% in the second quarter of 2001 and 90.6% in the first six months of 2001. . In recent years, our third party gross margin rates have been adversely affected by the efforts of managed care organizations, pharmacy benefit managers, governmental and other third party payors to reduce prescription drug costs. To address this trend, we have dropped and/or renegotiated a number of third party programs that fell below our minimum profitability standards. These efforts have helped to stabilize third party reimbursement rates. However, in recent months, as a result of increasing budget shortfalls, numerous state legislatures have proposed or are reported to be considering reductions in pharmacy reimbursement rates for Medicaid and other governmental programs. In the event this trend continues and we elect to withdraw our participation in third party programs and/or decide not to participate in future programs that fall below our minimum profitability standards, we may not be able to sustain our current rate of sales growth and gross margin dollars could be adversely affected. . Pharmacy sales are growing at a faster pace than front store sales. On average, our gross margin on pharmacy sales is lower than our gross margin on front store sales. Pharmacy sales as a percentage of total sales for the second quarter and first six months of 2002 were 67.9% and 67.7%, respectively, compared to 66.0% in the second quarter of 2001 and 66.5% in the first six months of 2001. 12 Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . Also contributing to the decline during 2002 was an increase in markdowns associated with the increased promotional activity discussed above and elevated physical inventory losses, offset, in part, by the increase in generic drug sales (discussed above), which generally yield a higher gross margin rate than brand named drug sales. To address the physical inventory loss trend, we initiated a number of programs, including, but not limited to, moving high-cost merchandise behind the counter or glass and improving our employee background screening and testing programs. We believe these efforts will begin to reduce inventory losses during the latter part of 2002. However, we cannot guarantee that these programs will produce the desired results. Total operating expenses for the second quarter of 2002 increased $66.4 million (or 5.9%) to $1,182.8 million, or 19.8% of net sales, compared to $1,116.4 million, or 20.3% of net sales in the second quarter of 2001. Total operating expenses for the first six months of 2002 increased $191.6 million (or 8.8%) to $2,380.0 million, or 19.9% of net sales, compared to $2,188.4 million, or 20.1% of net sales in the first six months of 2001. What have we done to improve our total operating expenses as a percentage of net sales? . The initiatives completed as part the Action Plan and other technology enhancements have lead to a more streamlined operating structure, which lowered operating costs, particularly at the store level. . As a result of the adoption of SFAS No. 142 at the beginning of fiscal 2002, we no longer amortize goodwill and other indefinite-lived intangible assets. For further information on SFAS No. 142, see Note 5 to the consolidated financial statements. . Our strong sales performance has consistently allowed net sales to grow at a faster pace than total operating expenses. Operating profit for the second quarter of 2002 decreased $43.7 million (or 12.8%) to $298.3 million, or 5.0% of net sales, compared to $342.0 million or 6.2% of net sales in the second quarter of 2001. For the first six months of 2002, operating profit decreased $128.6 million (or 17.8%) to $594.8 million, or 5.0% of net sales, compared to $723.4 million, or 6.6% of net sales in the first six months of 2001. Interest expense, net consisted of the following:
- -------------------------------------------------------------------------------------------------- 13 weeks ended 26 weeks ended In millions June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001 - -------------------------------------------------------------------------------------------------- Interest expense $ 14.7 $ 16.1 $ 29.2 $ 33.1 Interest income (0.9) (1.0) (2.3) (2.3) - -------------------------------------------------------------------------------------------------- Interest expense, net $ 13.8 $ 15.1 $ 26.9 $ 30.8 ==================================================================================================
The decrease in interest expense for the thirteen and twenty-six weeks ended June 29, 2002 was primarily due to lower average interest rates during 2002 compared to 2001. Income tax provision ~ Our effective income tax rate was 38.0% for the second quarter and first six months of 2002, compared to 39.4% for the respective periods of 2001. The decrease in our effective income tax rate was primarily due to the elimination of goodwill amortization that was not deductible for income tax purposes and lower state income taxes. Net earnings for the second quarter of 2002 decreased $21.6 million (or 10.9%) to $176.4 million, or $0.43 per diluted share, compared to $198.0 million, or $0.48 per diluted share, in the second quarter of 2001. Net earnings for the first six months of 2002 decreased $67.6 million (or 16.1%) to $352.1 million, or $0.86 per diluted share, compared to $419.7 million, or $1.02 per diluted share, in the first six months of 2001. 13 Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources We fund the growth of our business through a combination of cash flow from operations, commercial paper and long-term borrowings. Our liquidity is not currently dependent on the use of off-balance sheet transactions other than normal operating leases. We had $488.4 million of commercial paper outstanding at a weighted average interest rate of 1.9% as of June 29, 2002. In connection with our commercial paper program, we maintain a $650 million, five-year unsecured back-up credit facility, which expires on May 21, 2006 and a $650 million, 364-day unsecured back-up credit facility, which expires on May 19, 2003. As of June 29, 2002, we had not borrowed against the credit facilities. Our credit facilities and unsecured senior notes contain customary restrictive financial and operating covenants. We do not believe that the restrictions contained in these covenants materially affect our financial or operating flexibility. We believe that our cash on hand and cash provided by operations, together with our ability to obtain additional short-term and long-term financing, will be sufficient to cover our working capital needs, capital expenditures and debt service requirements for at least the next twelve months and beyond. Net cash provided by operating activities increased to $348.3 million in the first six months of 2002, compared to $127.0 million during the first six months of 2001. The improvement in net cash provided by operations was primarily the result of improved working capital management. Cash provided by operating activities will be negatively impacted by future payments associated with the Restructuring Charge. The timing of future cash payments related to the Restructuring Charge depend on when, and if, early lease terminations can be reached. As of June 29, 2002, the remaining payments, which primarily consist of noncancelable lease obligations extending through 2024, totaled $214.3 million. Net cash used in investing activities increased to $473.9 million during the first six months of 2002. This compares to $363.5 million during the first six months of 2001. The increase in net cash used in investing activities was primarily due to higher additions to property and equipment. Additions to property and equipment totaled $590.3 million in the first six months of 2002, compared to $275.8 million in the first six months of 2001. The majority of our capital spending in both quarters supported our real estate development program. During the first six months of 2002, we opened 74 new stores, relocated 55 stores and closed 263 stores. For the year, we plan to open approximately 250-275 stores, consisting of approximately 150-175 new stores and 100 relocations. Approximately, 70-75 of our new stores are expected to be in new markets. We finance a portion of our new store development program through sale-leaseback transactions. Proceeds from sale-leaseback transactions totaled $135.5 million for the six months of 2002. The properties were sold at net book value and the resulting leases qualify and are accounted for as operating leases. As of June 29, 2002, we operated 4,002 retail and specialty pharmacy stores in 32 states and the District of Columbia, compared to 4,130 stores as of June 30, 2001. 14 Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Concerning Forward-Looking Statements ~ The Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides a safe harbor for forward-looking statements made by or on behalf of CVS Corporation. The Company and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and in its reports to stockholders. Generally, the inclusion of the words "believe," "expect," "intend," "estimate," "anticipate," "will," and similar expressions identify statements that constitute "forward-looking statements". All statements addressing operating performance of CVS Corporation or any subsidiary, events, or developments that the Company expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per common share growth, free cash flow, inventory levels and turn rates, store development, relocations and new market entries, as well as statements expressing optimism or pessimism about future operating results or events, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based upon management's then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including but not limited to: .. The strength of the economy in general or in the markets served by CVS, including changes in consumer purchasing power and/or spending patterns; .. Increased competition from other drugstore chains, from alternative distribution channels such as supermarkets, membership clubs, mail order companies, discount retailers and internet companies (e-commerce) and from other third party plans; .. Changes in consumer preferences or loyalties; .. Price reductions taken by the Company in response to competitive pressures, as well as price reductions taken to drive demand that may not result in anticipated sales levels; .. Our ability to achieve projected levels of efficiencies, cost reduction measures and other benefits from the Action Plan announced during the fourth quarter of fiscal 2001 and other initiatives; .. The effects of litigation and the creditworthiness of the purchasers of former businesses whose store leases are guaranteed by CVS; .. Our ability to generate sufficient cash flows to support capital expansion, and general operating activities, and our ability to obtain necessary financing at favorable interest rates; .. Changes in laws and regulations, including changes in accounting standards, taxation requirements, including tax rate changes, new tax laws and revised tax law interpretations; .. Interest rate fluctuations and other capital market conditions; .. The continued introduction of successful new prescription drugs; .. The continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit management companies and other third party payers to reduce prescription drug costs; .. Our ability to continue to successfully implement new computer systems and technologies; .. Our ability to successfully attract customers through our customer reactivation program; .. Our ability to continue to secure suitable new store locations at favorable lease terms; .. Our ability to continue to purchase inventory on favorable terms; .. Our ability to attract, hire and retain suitable pharmacists and management personnel; 15 Part I Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .. Our ability to establish effective advertising, marketing and promotional programs (including pricing strategies) in the different geographic markets in which we operate; and .. Other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission. The foregoing list is not exhaustive. There can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely impact the Company. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on the Company's business, financial condition, and results of operations. For these reasons, you are cautioned not to place undue reliance on the Company's forward-looking statements. 16 Part I Item 3 Quantitative and Qualitative Disclosures About Market Risk The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes that its exposure to market risk associated with other financial instruments, principally interest rate risk inherent in its debt portfolio, is not material. 17 Part II Item 4 Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of security holders at our Annual Meeting of Stockholders, which was held on Wednesday, April 17, 2002 in Woonsocket, Rhode Island:
===================================================================================================================== Broker For Against Abstained Non-Votes - --------------------------------------------------------------------------------------------------------------------- 1. The election, for one-year terms, of all persons nominated for directors, as set forth in the Company's proxy statement dated March 19, 2002, was approved by the following votes: Eugene Applebaum 287,627,489 55,182,319 -- -- W. Don Cornwell 335,455,059 7,354,749 -- -- Thomas P. Gerrity 335,464,724 7,345,084 -- -- Stanley P. Goldstein 335,186,630 7,623,178 -- -- Marian L. Heard 335,438,403 7,371,405 -- -- William H. Joyce 335,454,113 7,335,695 -- -- Terry R. Lautenbach 338,389,386 4,420,422 -- -- Terrence Murray 338,345,546 4,464,262 -- -- Sheli Z. Rosenberg 338,413,705 4,458,339 -- -- Thomas M. Ryan 338,351,469 4,396,103 -- -- Ivan G. Seidenberg 338,359,875 4,449,933 -- -- 2. Ratification of the appointment of KPMG LLP as the Company's independent auditors for the fiscal year ending December 28, 2002 was approved by the following vote: 327,929,735 13,458,582 1,421,491 -- =====================================================================================================================
18 Part II Item 6 Exhibits and Reports on Form 8-K Exhibits: 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to CVS Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 3.1A Certificate of Amendment to the Amended and Restated Certificate of Incorporation, effective May 13, 1998 (incorporated by reference to Exhibit 4.1A to Registrant's Registration Statement No. 333-52055 on Form S-3/A dated May 18, 1998). 3.2 By-laws of the Registrant, as amended and restated (incorporated by reference to Exhibit 3.2 to CVS Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998). 10.1 Amendment No. 1 to the 364-day Credit Agreement dated as of May 17, 2002 by and among the Registrant, the lenders party hereto, Credit Suisse First Boston and Wachovia Bank, National Association, as Co-Documentation Agents and Fleet National Bank, as Administrative Agent. 15.1 Letter re: Unaudited Interim Financial Information. Reports on Form 8-K: On July 31, 2002, we filed a Current Report on Form 8-K in connection with our announcement that our Chief Executive Officer and Chief Financial Officer both intend to certify the company's periodic reports on a timely basis in accordance with the administrative order of the Securities Exchange Commission. Signatures: Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. CVS Corporation (Registrant) /s/ David B. Rickard - -------------------- David B. Rickard Executive Vice President, Chief Financial Officer and Chief Administrative Officer August 9, 2002 19 EX-10.1 3 dex101.txt AMENDMENT #1 TO 364 DAY CREDIT AGREEMENT Exhibit 10.1 CVS CORPORATION 364 DAY CREDIT AGREEMENT AMENDMENT NO. 1 AMENDMENT NO. 1 (this "Amendment"), dated as of May 17, 2002, to the 364 Day Credit Agreement, dated as of May 21, 2001, by and among CVS Corporation, the Lenders party thereto, Credit Suisse First Boston and Wachovia Bank, National Association (formerly known as First Union National Bank), as Co-Documentation Agents, and Fleet National Bank, as Administrative Agent (the "Credit Agreement"). Except as otherwise provided herein, capitalized terms used herein which are not defined herein shall have the meanings set forth in the Credit Agreement. In consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and pursuant to Section 11.1 of the Credit Agreement, the parties hereto hereby agree as follows: 1. Section 1.1 of the Credit Agreement is hereby amended as follows: (a) The defined term "Applicable Margin" is amended to amend and restate the chart contained therein to read as follows: - -------------------------------------------------------------------------- ABR Eurodollar Facility Utilization Pricing Level Advances Advances Fee Fee - -------------------------------------------------------------------------- Pricing Level I 0% 0.155% 0.045% 0.150% Pricing Level II 0% 0.195% 0.055% 0.150% Pricing Level III 0% 0.235% 0.065% 0.150% Pricing Level IV 0% 0.300% 0.075% 0.150% Pricing Level V 0% 0.350% 0.100% 0.250% Pricing Level VI 0% 0.425% 0.125% 0.250% Pricing Level VII 0% 0.500% 0.150% 0.250% - -------------------------------------------------------------------------- (b) The defined term "Commitment Amount" is amended to replace the reference to "Sections 2.6, 2.11 and 11.7(c)" contained therein with "Sections 2.6 and 11.7(c)" (c) The defined term "Commitment Termination Date" is amended to replace the date "May 20, 2002" contained therein with "May 19, 2003". (d) A new defined term "Syndication Agent" is added to read as follows: "Syndication Agent": The Bank of New York, in its capacity as syndication agent under this Agreement. 2. The Bank of New York is hereby appointed as syndication agent under this Agreement. 3. Section 10.10 of the Agreement is amended and restated in its entirety to read as follows: 10.10 Co-Documentation Agents and Syndication Agent The Co-Documentation Agents and the Syndication Agent shall have no duties or obligations under the Loan Documents in their capacity as Co-Documentation Agents and Syndication Agent, respectively. 4. The second to last sentence of Section 11.2 of the Credit Agreement is amended to replace the reference to "Sections 2.3, 2.4, 2.6, 2.7, 2.11 or 3.3" contained therein with "Sections 2.3, 2.4, 2.6, 2.7 or 3.3" 5. Exhibit A to the Credit Agreement is hereby amended to amend and restate in its entirety Part A (List of Commitments) thereto in the form attached hereto as Exhibit A. 6. Simultaneously with the effectiveness of this Amendment: (a) the Lenders listed on Annex I attached hereto (each a "Departing Lender") will exit the Credit Agreement and will no longer be Lenders (except with respect to those obligations of the Borrower under the Credit Agreement which by their express terms are intended to survive termination of the Credit Agreement) or have a Commitment thereunder; and (b) the Lenders listed on Annex II attached hereto (each a "Continuing Lender") will each have a Commitment in an amount equal to the Commitment Amount listed adjacent to its name on Exhibit A attached hereto. 7. This Amendment shall become effective (the "Amendment Effective Date") upon the satisfaction of the following conditions: (a) The receipt by the Administrative Agent of counterparts of this Amendment executed by the Borrower, the Administrative Agent and the Lenders - 2 - (excluding the Departing Lenders but including the Continuing Lenders, with the Continuing Lenders having Commitments, immediately following the effectiveness of this Amendment, aggregating at least $550,000,000). (b) The receipt by the Administrative Agent of (i) the written consent of the Departing Lenders and the Borrower to (x) the exit of the Departing Lenders from the Credit Agreement and (y) the termination of the Commitments of the Departing Lenders under the Credit Agreement simultaneously with the effectiveness of this Amendment and (ii) an amount, for the account of each Lender, including each Departing Lender, equal to the accrued and unpaid Facility Fee owing to such Lender to, but excluding, the Amendment Effective Date. (c) The receipt by the Administrative Agent of a certificate, dated the Amendment Effective Date, of the Secretary or an Assistant Secretary of the Borrower (i) attaching a true and complete copy of the resolutions of its Board of Directors and of all documents evidencing all other necessary corporate action (in form and substance reasonably satisfactory to the Administrative Agent) taken by the Borrower to authorize this Amendment and the transactions contemplated hereby, (ii) attaching a true and complete copy of its Certificate of Incorporation and By-Laws, (iii) setting forth the incumbency of the officer or officers of the Borrower who may sign this Amendment and the other documents to be delivered hereunder. (d) The receipt by the Administrative Agent of an opinion of Zenon Lankowsky, counsel to the Borrower, dated the Amendment Effective Date, in form and substance reasonably satisfactory to the Administrative Agent. 8. Except as amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect. 9. In order to induce the Administrative Agent to execute this Amendment and the Lenders to consent hereto, the Borrower hereby (a) certifies that, on the date hereof and immediately before and after giving effect to this Amendment, the representations and warranties contained in the Credit Agreement are and will be true and correct, except those which are expressly specified to be made as of an earlier date, (b) certifies that, during the period from December 30, 2000 to and including the Amendment Effective Date there has been no Material Adverse change, including as a result of any change in law, in the consolidated financial condition, operations, business or Property of the Borrower and the Subsidiaries taken as a whole, (c) certifies that, immediately before and after giving effect to this Amendment, no Default or Event of Default exists or will exist, and (d) agrees to pay the reasonable fees and disbursements of counsel to the Administrative Agent incurred in connection with the preparation, negotiation and closing of this Amendment. 10. This Amendment may be executed on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement. It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party to be charged. A set of the copies of this Amendment signed - 3 - by all of the parties hereto shall be lodged with each of the Borrower and the Administrative Agent. Any party to this Amendment may rely upon the signatures of any other party hereto which are transmitted by fax or other electronic means to the same extent as if originally signed. 11. This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. The parties have caused this Amendment to be duly executed as of the date first written above. CVS CORPORATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- FLEET NATIONAL BANK, in its capacity as a Lender and in its capacity as the Administrative Agent By: ----------------------------------- Name: ---------------------------------- Title: --------------------------------- - 4 - THE BANK OF NEW YORK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- CREDIT SUISSE FIRST BOSTON By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- WACHOVIA BANK, NATIONAL ASSOCIATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- ABN AMRO BANK N.V. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- ALLFIRST BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- BANK ONE, NA By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- - 5 - CITIBANK, N.A. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- CITIZENS BANK OF RHODE ISLAND By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- COMERICA BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- FIFTH THIRD BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- FIRSTAR BANK, N.A. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- JPMORGAN CHASE BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- - 6 - KEYBANK NATIONAL ASSOCIATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- MELLON BANK, N.A. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- NATIONAL CITY BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- PNC BANK, NATIONAL ASSOCIATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- REGIONS BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SOVEREIGN BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SUNTRUST BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- - 7 - WELLS FARGO BANK, N.A. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- - 8 - ANNEX I DEPARTING LENDERS 1. First Hawaiian Bank - 9 - ANNEX II CONTINUING LENDERS 1. The Bank of New York 2. Fleet National Bank 3. Wachovia Bank, National Association 4. Credit Suisse First Boston 5. ABN AMRO Bank N.V. 6. JPMorgan Chase Bank 7. KeyBank National Association 8. SunTrust Bank 9. Firstar Bank, N.A. 10. Mellon Bank, N.A. 11. PNC Bank, National Association 12. Comerica Bank 13. Allfirst Bank 14. Bank One, NA 15. Citibank, N.A. 16. Citizens Bank of Rhode Island 17. Fifth Third Bank 18. National City Bank 19. Sovereign Bank 20. Wells Fargo Bank 21. Regions Bank - 10 - CVS CORPORATION 364 DAY CREDIT AGREEMENT COMMITMENT INCREASE SUPPLEMENT EXHIBIT A A. LIST OF COMMITMENTS Lender Commitment Amount ----------------------------------- ----------------------- The Bank of New York $ 78,750,000 Fleet National Bank $ 78,750,000 Wachovia Bank, National Association $ 72,500,000 Credit Suisse First Boston $ 60,000,000 ABN AMRO Bank N.V. $ 37,500,000 JPMorgan Chase Bank $ 37,500,000 KeyBank National Association $ 37,500,000 SunTrust Bank $ 37,500,000 Firstar Bank, N.A. $ 37,500,000 Mellon Bank, N.A. $ 25,000,000 PNC Bank, National Association $ 25,000,000 Comerica Bank $ 17,500,000 Allfirst Bank $ 12,500,000 Bank One, NA $ 12,500,000 Citibank, N.A. $ 12,500,000 Citizens Bank of Rhode Island $ 12,500,000 Fifth Third Bank $ 12,500,000 National City Bank $ 12,500,000 Sovereign Bank $ 12,500,000 Wells Fargo Bank $ 10,000,000 Regions Bank $ 7,500,000 ----------------------- TOTAL $650,000,000 - 11 - EX-15.1 4 dex151.txt UNAUDITED INTERM FINANCIAL INFORMATION Part II Exhibit 15.1 Letter re: Unaudited Interim Financial Information August 9, 2002 CVS Corporation Woonsocket, Rhode Island Board of Directors: Re: Registration Statements Numbers 333-49407, 33-40251, 333-34927, 333-28043, 33-17181, 2-97913, 2-77397, 2-53766, 333-91253 and 333-63664 on Form S-8, 333-52055 on Form S-3, 333-78253 and 333-61216 on Form S-4. With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 26, 2002, related to our review of interim financial information. Pursuant to Rule 436 under the Securities Act of 1933 (the "Act"), such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant, within the meaning of sections 7 and 11 of the Act. Very truly yours, /s/ KPMG LLP - ------------ KPMG LLP Providence, Rhode Island -----END PRIVACY-ENHANCED MESSAGE-----