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EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion explains material changes in the results of
operations of the Company for the three months ended March 29, 1997, and the
significant developments affecting its financial condition since December 31,
1996. The following discussion should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and the supplemental consolidated
financial statements of the Company as of December 31, 1996 and 1995 and for
each of the years in the three-year period ended December 31, 1996, together
with the related supplemental Management's Discussion and Analysis of Financial
Condition and Results of Operations, in each case as restated for the merger of
CVS Corporation and Revco D.S. Inc., (which was consummated on May 29, 1997)
included herein as Exhibit 99.1.
MERGER
On May 29, 1997, CVS Corporation ("CVS"), formerly known as Melville
Corporation ("Melville") completed a merger with Revco D.S., Inc. ("Revco"),
hereafter collectively referred to as the Company, by exchanging approximately
60.3 million shares of its common stock for all of the outstanding common stock
of Revco (the "Merger"). Each outstanding share of Revco common stock was
exchanged for .8842 shares of CVS common stock. In addition, outstanding Revco
employee stock options were converted at the same exchange ratio into options to
purchase approximately 3.3 million shares of CVS common stock.
The Merger, which constituted a tax-free reorganization, has been accounted
for as a pooling-of-interests under Accounting Principles Board ("APB") Opinion
No. 16, "Accounting for Business Combinations." Accordingly, all prior period
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of Revco as if it had
always been part of CVS.
Pursuant to an agreement with the Federal Trade Commission, the Company is
required to divest 120 Revco stores, primarily in the Richmond, Virginia area.
At June 30, 1997, 114 stores had been divested.
Following is a summary of the results of operations for the separate
companies and the combined amounts presented in the consolidated condensed
financial statements for the three months ended:
MARCH 29, MARCH 30,
1997 1996
--------- ---------
IN MILLIONS
Net sales:
CVS.................................................... $1,515.0 $1,258.4
Revco.................................................. 1,645.8 1,299.8
-------- --------
$3,160.8 $2,558.2
======== ========
Earnings from continuing operations:
CVS.................................................... $ 58.4 $ 40.5
Revco.................................................. 24.2 31.8
-------- --------
$ 82.6 $ $72.3
======== ========
In accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," the
Company recorded a charge to operating expenses of $411.7 million in the
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second quarter of 1997 for direct and other merger-related costs pertaining to
the merger transaction and certain restructuring programs. Following is a
summary of the significant components of the charge:
IN MILLIONS
Merger transaction costs.......................................... $ 35.0
Restructuring costs:
Employee severance.............................................. 89.8
Exit costs...................................................... 286.9
------
$ 411.7
======
Merger transaction costs primarily include fees for investment bankers,
attorneys, accountants, financial printing and other related charges.
Restructuring activities primarily relate to the consolidation of administrative
functions. These actions will result in the reduction of approximately 1,000
employees, primarily in Revco's Twinsburg, Ohio Headquarters, and will include
the consolidation and closure of certain facilities. Exit costs primarily relate
to activities such as the cancellation of lease agreements, closing of stores
and the write-down of unutilized fixed assets.
Asset write-offs included in the above charge totaled $53.7 million. The
balance of the pre-tax charge, $358.0 million, will require cash outlays,
primarily in 1997 and 1998.
The Company also recorded a charge to cost of goods sold of approximately
$75 million in the second quarter of 1997 to reflect markdowns on non-compatible
merchandise.
RESULTS OF OPERATIONS
The results of operations of the Company's former footwear segment, apparel
segment and toys and home furnishings segment have been classified as
discontinued operations in the accompanying consolidated condensed statements of
operations for 1996. The following management discussion focuses primarily on
continuing operations.
NET SALES for the first quarter of 1997 increased $602.6 million or 23.6%
to $3.2 billion, compared to net sales of $2.6 billion for the first quarter of
1996. The increase in net sales resulted from strong performances in both the
front store (which increased $222.0 million or 18.1%, compared to 1996) and
pharmacy (which increased $380.6 million or 28.6%, compared to 1996). Front
store sales were positively impacted by the Easter selling season occurring
during the first quarter in 1997 versus the second quarter in 1996. Growth in
pharmacy sales was primarily driven by (i) increased penetration into managed
care markets, (ii) the purchase of prescription files from independent
pharmacies and (iii) favorable trends, including an aging American population,
greater demand for retail formats that provide easy access and convenience,
discovery of new drug therapies and a need for cost-effective healthcare
solutions.
Same store sales, consisting of sales from stores that have been open for
more than one year, rose 13.1%, with pharmacy same store sales increasing 18.4%.
Pharmacy sales were 54% of total sales in the first quarter of 1997, compared to
52% in the first quarter of 1996.
GROSS MARGIN for the first quarter of 1997 increased $164.1 million or
22.3% to $900.1 million, compared to $736.0 million in 1996. The increase in
gross margin dollars was primarily due to the increase in net sales for the
quarter. Gross margin as a percentage of net sales for the first quarter of 1997
was 28.5%, compared to 28.8% for the first quarter of 1996. The 30 basis point
reduction in 1997 was primarily due to the continued increase in lower gross
margin third party prescription sales and the increase in pharmacy sales as a
percentage of total sales.
TOTAL OPERATING EXPENSES for the first quarter of 1997 were $739.0 million
or 23.4% of net sales, compared to $590.9 million or 23.1% of net sales for the
first quarter of 1996.
When comparing 1997 to 1996, it is important to note that the Company
recorded a non-recurring charge of $31.0 million ($18.6 million after tax) in
February 1997 for certain non-capitalizable costs associated with the
restructuring of the Big B operations. The significant components of the charge
included: (i) $5.3 million
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for store, distribution and MIS conversion costs, (ii) $18.7 million for store
closing costs and (iii) $7.0 million for duplicate headquarters and
administration costs. In accordance with EITF 94-3, this non-recurring charge
includes accrued liabilities related to certain exit plans for identified stores
and duplicate corporate facilities. The charge primarily includes costs related
to the activities such as the cancellation of lease agreements and the
write-down of unutilized fixed assets. These exit plans do not benefit the
future activities of the retained stores or corporate facilities.
Excluding the effect of these charges, total operating expenses for the
first quarter of 1997 were $708.0 million or 22.4% of net sales. The 70 basis
point reduction from 1996 was primarily due to (i) the benefit derived from
sales in our existing store base growing at a faster rate than operating costs,
(ii) the benefit derived from a cost reduction program, which included, among
other things, closing Melville Corporation's Corporate Headquarters (the "Cost
Reduction Program") and (iii) the benefit derived from key technology
investments such as our RX 2000 Pharmacy System, Interactive Voice Response
System for prescription refills, Pharmacy Data Warehouse, Point-of-Sale System,
Retail Data Warehouse and Field Management System. These systems have
collectively allowed the Company to reduce the labor costs associated with
filling prescriptions, managing third party healthcare plans, managing
promotional events and scheduling employees.
OPERATING PROFIT for the first quarter of 1997 increased $16.0 million or
11.0% to $161.1 million, compared to $145.1 million for the first quarter of
1996. Operating profit as a percentage of net sales was 5.1% in the first
quarter of 1997, compared to 5.7% in 1996. Excluding the effect of the
non-recurring charge discussed above, operating profit for the first quarter of
1997 increased $47.0 million or 32.4% to $192.1 million. The increase in
operating profit in 1997 is primarily due to (i) leveraging sales growth, (ii)
stable front store margins, (iii) the benefits derived from key technology
investments, (iv) controlling fixed costs and (v) the benefit derived from the
Cost Reduction Program.
OTHER EXPENSE, NET for the first quarter of 1997 amounted to $12.9 million,
compared to $16.9 million for the first quarter of 1996. The decrease in net
expense from 1996 was primarily attributable to an increase in interest income,
which was primarily the result of the Company's strong cash position and the
interest income realized on the notes receivable that were received as a portion
of the proceeds from the sale of certain former divisions. Dividend income in
1996 was earned on equity securities the Company received as a portion of the
proceeds from the sale of the Marshalls division to The TJX Companies, Inc. in
1995. These equity securities were sold during 1996.
EARNINGS FROM CONTINUING OPERATIONS for the first quarter of 1997 increased
$10.3 million or 14.2% to $82.6 million, or $.47 per share, compared to $72.3
million, or $.42 per share for the first quarter of 1996. Excluding the effect
of the non-recurring charge discussed above, earnings from continuing operations
for the first quarter of 1997 increased $28.9 million or 40.0% to $101.2
million, or $.57 per share.
NET EARNINGS, including continuing and discontinued operations, were $82.7
million, or $.47 per share, compared to $46.0 million, or $.26 per share for the
first quarter of 1996.
As of June 30, 1997, the Company operated 3,924 stores in 24 states and the
District of Columbia.
FINANCIAL CONDITION AND LIQUIDITY
The Company has three primary sources of liquidity: (i) cash provided by
operations, (ii) commercial paper and (iii) bank loan participation notes. At
December 31, 1996, the Company's commercial paper program was supported by a
$320 million unsecured revolving credit facility (the "$320 Million Facility").
In connection with the Merger, the Company replaced its $320 Million Facility
with a $670 million, five year unsecured revolving credit facility and obtained
a $330 million, 364 day unsecured revolving line of credit due May 29, 1998
(collectively the "Credit Facilities"). The Company can also obtain short-term
financing through the issuance of bank loan participation notes.
The Credit Facilities contain customary financial and operating covenants.
Management believes that the restrictions contained in these covenants do not
materially affect the Company's financial flexibility.
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The Company issues commercial paper to finance, in part, its seasonal
inventory requirements and capital expenditures. Borrowing levels throughout the
year are typically higher than those reflected in the Company's year-end balance
sheet. Management believes that the Company's cash on hand and cash provided by
operations, together with its ability to secure short-term financing through
commercial paper and bank loan participation notes, will be sufficient to cover
its working capital, capital expenditure and debt service requirements.
In connection with the Merger, on May 30, 1997, the Company repaid $600
million of bank debt outstanding under its Revco Bank Facility which was
subsequently terminated (the "Bank Facility Repayment"). On June 30, 1997, the
Company redeemed $144.9 million aggregate principal amount of its 10.125% Senior
Notes (the "Debt Redemption") at 105% of the principal amount thereof plus
accrued interest. In addition, on June 25, 1997, the Company commenced an offer
(the "Debt Tender Offer") to purchase for cash $140.0 million aggregate
principal amount of its 9.125% Senior Notes. The Debt Tender Offer expired on
July 2, 1997 and $118.6 million aggregate principal amount of the 9.125% Senior
Notes were repurchased at an average price of 104.72% principal amount plus
accrued interest. The Company expects to redeem the remaining 9.125% Senior
Notes outstanding on January 15, 1998, the first redemption date, at 103% of
principal plus accrued interest. The Bank Facility Repayment, Debt Redemption
and Debt Tender Offer were financed with cash on hand and borrowings through the
Company's commercial paper program.
For the three months ended March 29, 1997, cash and cash equivalents
decreased $122.1 million to $349.7 million.
NET CASH USED IN OPERATING ACTIVITIES decreased $121.4 million to $46.3
million for the three months ended March 29, 1997, compared to the first quarter
of 1996 primarily due to improved net earnings.
NET CASH USED IN INVESTING ACTIVITIES decreased $4.7 million to $49.5
million during the three months ended March 29, 1997, compared to the first
quarter of 1996 primarily due to the lower capital expenditures that resulted
from the Company's discontinued operations.
NET CASH USED IN FINANCING ACTIVITIES increased $202.3 million to $26.3
during the three months ended March 29, 1997, compared to the first quarter of
1996 primarily due to the Company's strong cash position which resulted in lower
borrowing levels for the first quarter of 1997, offset partially by a smaller
decrease in book overdrafts.
CAPITAL EXPENDITURES
Capital expenditures were $51.7 million and $67.5 million in the first
three months of 1997 and 1996, respectively. These expenditures were primarily
for (i) new stores, (ii) improvements to existing stores, (iii) store equipment,
(iv) information systems and (v) distribution and office facilities. The lower
capital expenditure level in 1997 was primarily due to the Company's
discontinued operations.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This Form 8-K contains and incorporates by reference certain
forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements include the information concerning future results of
operations of CVS after completion of the merger with Revco; the information
concerning CVS' ability to continue to achieve significant sales growth; the
information concerning CVS' ability to continue to reduce selling, general and
administrative expenses as a percentage of net sales; as well as those preceded
by, followed by or that otherwise include the words: "believes," "expects,"
"anticipates," "intends," "estimates" or other similar expressions. For those
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors, in addition to those
discussed elsewhere in this Annual Report (including in the notes to the
consolidated financial statements included herein) and in our Annual Report on
Form 10-K for the year ended December 31, 1996, could affect the future results
of CVS and could cause those results to differ materially from those expressed
in our forward-looking statements: materially adverse changes in economic
conditions generally or in the markets served by CVS; material changes in
inflation; future
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regulatory and legislative actions affecting the chain-drug industry;
competition from other drugstore chains, from alternative distribution channels
such as supermarkets, membership clubs, other retailers and mail order
companies; and from other third party plans; and the continued efforts of health
maintenance organizations, managed care organizations, patient benefit
management companies and other third party payors to reduce prescription drug
costs. The forward-looking statements referred to above are also subject to
uncertainties and assumptions relating to the operations and results of
operations of CVS, including: risks relating to CVS' ability to combine the
businesses of CVS and Revco and maintain current operating performance levels
during the integration period and the challenges inherent in diverting CVS'
management focus and resources from other strategic opportunities and from
operational matters for an extended period of time during the integration
process; CVS' ability to continue to secure suitable new store locations on
favorable lease terms, relationship with suppliers, CVS' ability to continue to
purchase inventory on favorable terms; and CVS' ability to attract, hire and
retain suitable pharmacists and management personnel.
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
CVS CORPORATION
(UNAUDITED)
THREE MONTHS ENDED
---------------------------------
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
Net sales....................................................... $3,160.8 $2,558.2
Cost of goods sold, buying and warehousing costs................ 2,260.7 1,822.2
-------- --------
Gross margin.................................................. 900.1 736.0
Selling, general and administrative expenses.................... 654.5 544.4
Depreciation and amortization................................... 53.5 46.5
Restructuring charge............................................ 31.0 --
-------- --------
Total operating expenses.............................. 739.0 590.9
-------- --------
Operating profit................................................ 161.1 145.1
Dividend income................................................. -- 2.7
Interest expense, net........................................... (12.9) (19.6)
-------- --------
Other expense, net............................................ (12.9) (16.9)
-------- --------
Earnings from continuing operations before income taxes......... 148.2 128.2
Income tax provision............................................ 65.6 55.9
-------- --------
Earnings from continuing operations............................. 82.6 72.3
Discontinued operations:
Loss from operations, net of income tax benefit of $17.6 in
1996....................................................... -- (26.0)
Estimated gain (loss) on disposal, net of income tax benefit
of $.6 in 1996............................................. .1 (.3)
-------- --------
Earnings (loss) from discontinued operations.................. .1 (26.3)
-------- --------
Net earnings.................................................... 82.7 46.0
Preferred dividends, net........................................ (3.5) (3.3)
-------- --------
Net earnings available to common shareholders................... $ 79.2 $ 42.7
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PER COMMON SHARE:
Earnings from continuing operations........................... $ .47 $ .42
Earnings (loss) from discontinued operations.................. -- (.16)
-------- --------
Net earnings.................................................. $ .47 $ .26
======== ========
Weighted average common shares outstanding...................... 169.3 165.2
======== ========
Dividends per common share...................................... $ .11 $ .11
======== ========
See accompanying notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED BALANCE SHEETS
CVS CORPORATION
MARCH 29, 1997
(UNAUDITED) DECEMBER 31, 1996
-------------- -----------------
(IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
ASSETS:
Cash and cash equivalents................................... $ 349.7 $ 471.8
Investments................................................. 181.6 181.4
Accounts receivable, net.................................... 371.8 350.7
Inventories................................................. 2,371.1 2,328.2
Other current assets........................................ 194.8 196.8
-------- --------
TOTAL CURRENT ASSETS................................ 3,469.0 3,528.9
Property and equipment, net................................. 1,027.6 1,024.5
Deferred charges and other assets........................... 232.9 223.8
Goodwill, net............................................... 716.9 721.7
Reorganization value in excess of amounts allocated
to identifiable assets................................... 186.0 194.8
-------- --------
TOTAL ASSETS................................................ $5,632.4 $ 5,693.7
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LIABILITIES:
Accounts payable............................................ $ 954.3 $ 1,046.3
Accrued expenses............................................ 947.5 1,007.1
Federal income taxes........................................ 23.2 24.5
Other current liabilities................................... 18.2 44.9
-------- --------
TOTAL CURRENT LIABILITIES........................... 1,943.2 2,122.8
Long-term debt.............................................. 1,177.5 1,184.3
Deferred income taxes....................................... 53.2 49.4
Other long-term liabilities................................. 167.3 140.8
SHAREHOLDERS' EQUITY:
Preference stock; par value $1.00, 50 shares authorized;
Series One ESOP Convertible, liquidation value $53.45;
5.5 and 5.6 shares issued and outstanding at March 29,
1997 and December 31, 1996, respectively................. 296.3 298.6
Common stock; par value $.01, 300 shares authorized, 172.9
and 172.2 shares issued at March 29, 1997 and December
31, 1996, respectively................................... 1.7 1.7
Treasury stock at cost; 5.8 shares at March 29, 1997 and
December 31, 1996, respectively.......................... (271.2) (273.1)
Guaranteed ESOP obligation.................................. (292.1) (292.1)
Capital surplus............................................. 900.1 875.9
Retained earnings........................................... 1,658.8 1,587.8
Other....................................................... (2.4) (2.4)
-------- --------
TOTAL SHAREHOLDERS' EQUITY.................................. 2,291.2 2,196.4
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $5,632.4 $ 5,693.7
======== ========
See accompanying notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
CVS CORPORATION
(UNAUDITED)
THREE MONTHS ENDED
---------------------------------
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
(IN MILLIONS)
NET CASH USED IN OPERATING ACTIVITIES........................... $ (46.3) $ (167.7)
======= =======
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................... (51.7) (67.5)
Proceeds from sale or disposal of assets...................... 2.2 13.3
------- -------
NET CASH USED IN INVESTING ACTIVITIES......................... (49.5) (54.2)
======= =======
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in notes payable.......................... (7.0) 360.1
Decrease in book overdrafts................................... (32.5) (179.7)
Dividends paid................................................ (11.7) (11.6)
Proceeds from stock options exercised......................... 24.9 7.2
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES........... (26.3) 176.0
======= =======
Net decrease in cash and cash equivalents....................... (122.1) (45.9)
Cash and cash equivalents at beginning of period................ 471.8 145.2
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 349.7 $ 99.3
======= =======
See accompanying notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CVS CORPORATION
(UNAUDITED)
NOTE 1
The accompanying consolidated condensed financial statements have been
prepared without audit, in accordance with the rules of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance with such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the supplemental consolidated financial statements of the
Company as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996, together with the related
supplemental Management's Discussion and Analysis of Financial Condition and
Results of Operations, in each case as restated for the merger of CVS
Corporation and Revco D.S. Inc., (which was consummated on May 29, 1997) which
has been accounted for as a pooling of interests under Accounting Principles
Board Opinion No. 16 and which is included herein as Exhibit 99.1.
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
results for the interim periods presented. Because of the influence of certain
holidays, seasonal and other factors on the Company's operations, net earnings
for any interim period may not be comparable to the same interim period in
previous years, nor necessarily indicative of earnings for the full year.
NOTE 2
On May 29, 1997, CVS Corporation ("CVS") completed a merger with Revco
D.S., Inc. ("Revco"), hereafter collectively referred to as the Company, by
exchanging approximately 60.3 million shares of its common stock for all of the
outstanding common stock of Revco (the "Merger"). Each outstanding share of
Revco common stock was exchanged for .8842 shares of CVS common stock. In
addition, outstanding Revco employee stock options were converted at the same
exchange ratio into options to purchase approximately 3.3 million shares of CVS
common stock.
The Merger, which constituted a tax-free reorganization, has been accounted
for as a pooling-of-interests under Accounting Principles Board ("APB") Opinion
No. 16, "Accounting for Business Combinations." Accordingly, all prior period
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of Revco as if it had
always been part of CVS.
Pursuant to an agreement with the Federal Trade Commission, the Company is
required to divest 120 Revco stores, primarily in the Richmond, Virginia area.
At June 30, 1997, 114 of the stores had been divested.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CVS CORPORATION
Following is a summary of the results of operations for the separate
companies and the combined amounts presented in the consolidated condensed
financial statements for the three months ended:
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
(IN MILLIONS)
Net sales:
CVS............................................. $1,515.0 $1,258.4
Revco........................................... 1,645.8 1,299.8
-------- --------
$3,160.8 $2,558.2
======== ========
Earnings from continuing operations:
CVS............................................. $ 58.4 $ 40.5
Revco........................................... 24.2 31.8
-------- --------
$ 82.6 $ 72.3
======== ========
NOTE 3
Discontinued operations accounted for approximately 2.9% and 2.5% of total
assets and approximately 1.8% and 1.8% of total liabilities at March 29, 1997
and December 31, 1996 respectively. Net sales from discontinued operations
totaled $71.2 million and $862.0 million for the three months ended March 29,
1997 and March 30, 1996, respectively.
NOTE 4
Primary earnings per share is computed by dividing (i) net earnings, after
deducting net dividends on redeemable preferred stock and ESOP Preference Stock
("Primary Earnings"), by (ii) the weighted average number of common shares
outstanding during the period assuming the exercise of stock options ("Primary
Shares").
Fully diluted earnings per share assumes that the ESOP preference stock is
converted into common stock. Fully diluted earnings per share is computed by
dividing (i) Primary Earnings, after accounting for the difference between the
current dividends on the ESOP preference stock and the common stock and after
making adjustments for certain non-discretionary expenses that are based on net
earnings such as incentive bonuses and profit sharing by (ii) Primary Shares
plus the number of additional common shares that would be issued upon the
conversion of the ESOP preference stock. Fully diluted earnings per share
presentation is not required on the face of the consolidated statements of
operations due to the results of the materiality tests mandated by Accounting
Principles Board Opinion No. 15, "Earnings Per Share."
The Company plans to adopt Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" during the fourth quarter of 1997. SFAS
No. 128 was issued in February 1997 and is effective for periods ending after
December 15, 1997. This standard requires the dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures. It also requires a reconciliation of the
computation between basic and diluted earnings per share. Earlier adoption of
this statement is not permitted for comparability reasons. The Company does not
expect basic earnings per share to be materially different from primary earnings
per share.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CVS CORPORATION
NOTE 5
Following are the components of net interest expense:
THREE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1997 1996
--------- ---------
(IN MILLIONS)
Interest expense....................................... $ (19.1) $ (19.9)
Interest income........................................ 6.2 .2
-------- ------
Interest expense, net.................................. $ (12.9) $ (19.7)
======== ======