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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 27, 1998 001-01011
CVS CORPORATION
---------------
(Exact name of registrant as specified in its charter)
Delaware 05-0494040
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(State of Incorporation) (I.R.S. Employer Identification Number)
One CVS Drive, Woonsocket, Rhode Island 02895
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(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, outstanding at August 3, 1998:
389,337,279 shares
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INDEX
Page
Part I
Item 1. Financial Statements
Consolidated Condensed Statements of Operations -
Three and Six Months Ended June 27, 1998 and June 28, 1997 3
Consolidated Condensed Balance Sheets -
As of June 27, 1998 and December 31, 1997 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 27, 1998 and June 28, 1997 5
Notes to Consolidated Condensed Financial Statements 6
Independent Accountants' Review Report 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Part II
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
2
Part I Item 1
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CVS Corporation
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
In millions, except per common share amounts June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
=============================================================================================================================
Net sales $3,755.9 $ 3,406.8 $ 7,357.4 $6,804.6
Cost of goods sold, buying and warehousing costs 2,735.4 2,533.8 5,330.0 4,963.7
- -----------------------------------------------------------------------------------------------------------------------------
Gross margin 1,020.5 873.0 2,027.4 1,840.9
Selling, general and administrative expenses 726.4 693.7 1,430.6 1,396.9
Depreciation and amortization 61.2 58.7 125.0 116.4
Merger and restructuring charges 158.3 411.7 158.3 442.7
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 945.9 1,164.1 1,713.9 1,956.0
- -----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 74.6 (291.1) 313.5 (115.1)
Interest expense, net 18.9 16.2 30.1 29.1
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before
income taxes and extraordinary item 55.7 (307.3) 283.4 (144.2)
Income tax provision (benefit) 39.5 (85.9) 135.2 (14.9)
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations before
extraordinary item 16.2 (221.4) 148.2 (129.3)
Discontinued operations:
Gain on disposal, net of income tax provision of $12.4 -- 17.4 -- 17.5
- -----------------------------------------------------------------------------------------------------------------------------
Earnings from discontinued operations -- 17.4 -- 17.5
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) before extraordinary item 16.2 (204.0) 148.2 (111.8)
Extraordinary item, loss related to early retirement of
debt, net of income tax benefit of $11.4 -- (17.1) -- (17.1)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 16.2 (221.1) 148.2 (128.9)
Preference dividends, net of income tax benefit (3.4) (3.4) (6.8) (6.8)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) available to common shareholders $ 12.8 $(224.5) $ 141.4 $ (135.7)
=============================================================================================================================
Basic earnings per common share:
Earnings (loss) from continuing operations
before extraordinary item $ 0.03 $ (0.60) $ 0.37 $ (0.37)
Earnings from discontinued operations -- 0.05 -- 0.05
Extraordinary item, net of income tax benefit -- (0.05) -- (0.05)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 0.03 $ (0.60) $ 0.37 $ (0.37)
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average basic common shares outstanding 385.8 373.9 384.3 372.3
=============================================================================================================================
Diluted earnings per common share:
Earnings (loss) from continuing operations
before extraordinary item $ 0.03 $ (0.60) $ 0.36 $ (0.37)
Earnings from discontinued operations -- 0.05 -- 0.05
Extraordinary item, net of income tax benefit -- (0.05) -- (0.05)
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 0.03 $ (0.60) $ 0.36 $ (0.37)
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average diluted common shares outstanding 394.6 373.9 404.1 372.3
=============================================================================================================================
Dividends declared per common share $ 0.0575 $0.0550 $0.1125 $ 0.1100
=============================================================================================================================
See accompanying notes to consolidated condensed financial statements.
3
Part I Item 1
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CVS Corporation
Consolidated Condensed Balance Sheets
(Unaudited)
June 27, December 31,
In millions 1998 1997
=========================================================================================================================
Assets:
Cash and cash equivalents $ 62.0 $ 192.5
Accounts receivable, net 499.3 452.4
Inventories 2,938.0 2,882.4
Other current assets 349.6 364.8
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 3,848.9 3,892.1
Property and equipment, net 1,171.9 1,072.3
Goodwill, net 712.3 711.5
Deferred charges and other assets 230.4 195.1
Reorganization value in excess of amounts allocated to
identifiable assets, net 99.1 107.9
- -------------------------------------------------------------------------------------------------------------------------
Total assets $6,062.6 $5,978.9
=========================================================================================================================
Liabilities:
Accounts payable $ 865.7 $1,233.7
Accrued expenses and other current liabilities 1,202.4 1,210.5
Short-term borrowings 673.9 466.4
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,742.0 2,910.6
Long-term debt 288.4 288.8
Other long-term liabilities 175.4 164.9
Shareholders' equity:
Preference stock; par value $1.00, authorized 50 shares; Series One ESOP
Convertible, issued and outstanding 5.3 shares at June 27, 1998 and
December 31, 1997 281.7 284.6
Common stock; par value $0.01, authorized 1,000 shares, issued 399.6 and
393.8 shares at June 27, 1998 and December 31, 1997, respectively 4.0 2.0
Treasury stock at cost; 11.2 shares at June 27, 1998 and December 31, 1997 (260.4) (262.9)
Guaranteed ESOP obligation (292.2) (292.2)
Capital surplus 1,291.9 1,155.9
Retained earnings 1,831.8 1,727.2
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,856.8 2,614.6
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $6,062.6 $5,978.9
=========================================================================================================================
See accompanying notes to consolidated condensed financial statements.
4
Part I Item 1
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CVS Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
June 27, June 28,
In millions 1998 1997
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Net cash used in operating activities $ (26.5) $ (17.4)
==================================================================================
Cash flows from investing activities:
Additions to property and equipment (224.7) (109.8)
Proceeds from sale of investments -- 247.1
Proceeds from sale or disposal of assets 37.2 12.1
Acquisitions, net of cash (16.6) --
- ----------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (204.1) 149.4
==================================================================================
Cash flows from financing activities:
Additions to short-term borrowings 207.5 --
Decrease in book overdrafts (133.5) (39.2)
Dividends paid (43.6) (30.6)
Reductions in long-term debt (20.1) (596.1)
Proceeds from stock options exercised 89.8 136.1
- ----------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 100.1 (529.8)
==================================================================================
Net decrease in cash and cash equivalents (130.5) (397.8)
Cash and cash equivalents at beginning of period 192.5 506.8
- ----------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 62.0 $ 109.0
==================================================================================
See accompanying notes to consolidated condensed financial statements.
5
Part I Item 1
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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 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 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 31, 1997.
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 of operations 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, nor necessarily
indicative of earnings for the full year.
Note 2
On March 31, 1998, CVS completed a merger with Arbor Drugs, Inc. ("Arbor"),
hereafter collectively referred to as the Company, pursuant to which on a post
two-for-one common stock split basis, approximately 37.8 million shares of CVS
common stock were issued for all of the outstanding common stock of Arbor (the
"CVS/Arbor Merger"). Each outstanding share of Arbor common stock was exchanged
for 0.6364 shares of CVS common stock in the CVS/Arbor Merger. In addition,
outstanding Arbor employee and director stock options were converted at the same
exchange ratio into options to purchase approximately 5.2 million shares of CVS
common stock.
The CVS/Arbor Merger, which constituted a tax-free reorganization, has been
accounted for as a pooling of interests under Accounting Principles Board
("APB") Opinion No. 16, "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 Arbor as if it had
always been part of CVS.
Prior to the CVS/Arbor Merger, Arbor's fiscal year ended on July 31. In
recording the business combination, Arbor's fiscal year-end has been restated to
reflect a December 31 year-end to conform with CVS' fiscal year-end.
Arbor's cost of sales and inventories have been restated from the last-in,
first-out method to the first-in, first-out method in order to conform to CVS'
accounting method for inventories.
There were no material transactions between CVS and Arbor prior to the
CVS/Arbor Merger. Certain reclassifications have been made to Arbor's historical
financial statements to conform to CVS' presentation.
6
Part I Item 1
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CVS Corporation
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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 $158.3 million during the
second quarter of 1998 for direct and other merger-related costs pertaining to
the CVS/Arbor Merger transaction and certain restructuring activities (the
"Arbor Restructuring Charge").
Following is a summary of the significant components of the Arbor
Restructuring Charge:
================================================================================
Arbor
Restructuring Balance
In millions Charge Utilized at 6/27/98
- --------------------------------------------------------------------------------
Merger transaction costs $ 15.0 $ 11.4 $ 3.6
Restructuring costs:
Employee severance 27.1 0.3 26.8
Exit costs 116.2 8.0 108.2
- --------------------------------------------------------------------------------
$158.3 $ 19.7 $138.6
================================================================================
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 200
employees, primarily in Arbor's Troy, Michigan 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
facilities and the write-down of unutilized fixed assets.
Asset write-offs included in the Arbor Restructuring Charge totaled $11.9
million. The balance of the charge, $146.4 million, will require cash outlays,
primarily in 1998 and 1999.
The Company also recorded a charge to cost of goods sold of $10.0 million
during the second quarter of 1998 to reflect markdowns on non-compatible Arbor
merchandise.
Following is a summary of the results of operations for the separate
companies prior to the CVS/Arbor Merger and the combined amounts presented in
the accompanying consolidated condensed financial statements:
================================================================================
Three Months Ended
In millions March 28, 1998 March 29, 1997
- --------------------------------------------------------------------------------
Net sales:
CVS $ 3,333.6 $ 3,160.8
Arbor 267.9 237.0
- --------------------------------------------------------------------------------
$ 3,601.5 $ 3,397.8
================================================================================
Earnings from continuing operations
before extraordinary item:
CVS $ 121.3 $ 82.7
Arbor 10.7 9.4
- --------------------------------------------------------------------------------
$ 132.0 $ 92.1
================================================================================
7
Part I Item 1
================================================================================
CVS Corporation
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 3
On May 29, 1997, CVS completed a merger with Revco D.S., Inc. ("Revco"),
pursuant to which on a post two-for-one common stock split basis, approximately
120.6 million shares of CVS common stock were issued for all of the outstanding
common stock of Revco (the "CVS/Revco Merger").
The CVS/Revco Merger, which constituted a tax-free reorganization, has been
accounted for as a pooling of interests under APB Opinion No. 16. 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.
In conjunction with the CVS/Revco Merger, the Company recorded a charge to
operating expenses of $411.7 million in the second quarter of 1997 for direct
and other merger-related costs pertaining to the CVS/Revco Merger transaction
and certain restructuring activities (the "Revco Restructuring Charge").
Following is a summary of the significant components of the Revco
Restructuring Charge:
==============================================================================
Revco
Restructuring Balance at
In millions Charge Utilized June 27, 1998
------------------------------------------------------------------------------
Merger transaction costs $ 35.0 $ 32.4 $ 2.6
Restructuring costs:
Employee severance 89.8 54.7 35.1
Exit costs 286.9 174.3 112.6
------------------------------------------------------------------------------
$411.7 $261.4 $150.3
==============================================================================
The Company also recorded a $75.0 million charge to cost of goods sold
during the second quarter of 1997 to reflect markdowns on non-compatible Revco
merchandise of which $72.0 million had been utilized through June 27, 1998.
Note 4
On May 13, 1998, the Company's shareholders approved an increase in the
number of authorized common shares from 300 million to one billion. On that
date, the Board of Directors authorized a two-for-one common stock split to be
effected by the issuance of one additional share of common stock for each share
of common stock outstanding. Such shares were distributed on June 15, 1998 to
shareholders of record as of May 25, 1998. The accompanying consolidated
condensed financial statements have been restated to reflect the effect of the
two-for-one common stock split.
Note 5
On June 26, 1998, the Company replaced its $300 million unsecured revolving
credit facility, due to expire on June 30, 1998, with a $460 million, 364 day
unsecured revolving credit facility. The Company's existing $670 million,
five-year unsecured revolving credit facility, which expires on May 30, 2002,
remained unchanged.
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").
Diluted earnings per common share normally assumes that the ESOP Preference
Stock is converted into common stock and all dilutive stock options are
exercised. Diluted earnings per common share is computed by dividing: (i) net
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) 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.
In the three months ended June 27, 1998, the assumed conversion of the ESOP
Preference Stock would have increased diluted earnings per common share and,
therefore, was not considered. In the three and six months ended June 28, 1997,
due to the loss from continuing operations, the assumed conversion of the ESOP
Preference Stock and the exercise of stock options would have also increased
diluted earnings per share and, therefore, were not considered.
Following is a reconciliation of basic and diluted earnings per common
share from continuing operations:
====================================================================================================================
Three Months Ended Six Months Ended
Per Per
Common Common
In millions, except per common share amounts Earnings Shares Share Earnings Shares Share
- --------------------------------------------------------------------------------------------------------------------
June 27, 1998:
Basic EPS:
Earnings from continuing operations
before extraordinary item $ 16.2 -- -- $ 148.2 -- --
Preference dividends, net of tax benefit (3.4) -- -- (6.8) -- --
- --------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
available to common shareholders $ 12.8 385.8 $ 0.03 $ 141.4 384.3 $ 0.37
- --------------------------------------------------------------------------------------------------------------------
Diluted EPS:
Preference dividends, net of tax benefit -- -- -- 6.8 10.6 --
Dilutive earnings adjustments -- -- -- (0.5) -- --
Dilutive stock options -- 8.8 -- -- 9.2 --
- --------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
available to common shareholders $ 12.8 394.6 $ 0.03 $ 147.7 404.1 $ 0.36
====================================================================================================================
June 28, 1997:
Basic EPS:
Earnings from continuing operations
before extraordinary item $(221.4) -- -- $(129.3) -- --
Preference dividends, net of tax benefit (3.4) -- -- (6.8) -- --
- --------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
available to common shareholders $(224.8) 373.9 $ (0.60) $(136.1) 372.3 $(0.37)
- ---------------------------------------------------------------------------------------------------------------------
Diluted EPS:
Earnings from continuing operations
available to common shareholders $(224.8) 373.9 $ (0.60) $(136.1) 372.3 $(0.37)
=====================================================================================================================
9
Part I Item 1
================================================================================
CVS Corporation
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 7
Following are the components of net interest expense:
=============================================================================================================
Three Months Ended Six Months Ended
In millions June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
-------------------------------------------------------------------------------------------------------------
Interest expense $ 21.1 $ 21.3 $ 34.2 $ 40.6
Interest income (2.2) (5.1) (4.1) (11.5)
-------------------------------------------------------------------------------------------------------------
Interest expense, net $ 18.9 $ 16.2 $ 30.1 $ 29.1
=============================================================================================================
Note 8
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires
companies to report financial information based on how management internally
organizes information to make operating decisions and assess performance. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." SFAS No. 132 revises the disclosure
requirements for pensions and other postretirement benefit plans. This
statement, however, does not change any of the measurement or recognition
provisions required under previous guidance. Both statements are effective for
fiscal years beginning after December 15, 1997. The Company is in the process of
determining what impact, if any, these pronouncements will have on its financial
statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for fiscal years
beginning after December 15, 1998. SOP 98-1 defines which costs incurred to
develop or purchase internal-use software should be capitalized and which should
be expensed. The Company is in the process of determining what impact, if any,
this pronouncement will have on its financial statements.
10
Part I Independent Accountants' Review Report
================================================================================
The Board of Directors and Shareholders of
CVS Corporation:
We have reviewed the consolidated condensed balance sheets of CVS
Corporation as of June 27, 1998 and June 28, 1997, and the related consolidated
condensed statements of operations for the three and six months then ended and
cash flows for the six months then ended. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
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 generally accepted auditing standards, 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 reviews, 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 generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG PEAT MARWICK LLP
Providence, Rhode Island
July 29, 1998
11
Part I Item 2
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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 CVS Corporation ("CVS") for the three and six months ended June
27, 1998 and June 28, 1997 and the significant developments affecting its
financial condition since December 31, 1997. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
All financial information presented herein has been restated to reflect the
merger of CVS and Arbor Drugs, Inc. ("Arbor") and the two-for-one common stock
split that was distributed to shareholders on June 15, 1998.
CVS/Arbor Merger
On March 31, 1998, CVS completed a merger with Arbor Drugs, Inc. ("Arbor"),
hereafter collectively referred to as the Company, pursuant to which on a post
two-for-one common stock split basis, approximately 37.8 million shares of CVS
common stock were issued for all of the outstanding common stock of Arbor (the
"CVS/Arbor Merger"). Each outstanding share of Arbor common stock was exchanged
for 0.6364 shares of CVS common stock in the CVS/Arbor Merger. In addition,
outstanding Arbor employee and director stock options were converted at the same
exchange ratio into options to purchase approximately 5.2 million shares of CVS
common stock.
The CVS/Arbor Merger, which constituted a tax-free reorganization, has been
accounted for as a pooling of interests under Accounting Principles Board
("APB") Opinion No. 16, "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 Arbor as if it had
always been part of CVS.
The CVS/Arbor Merger established the Company as the nation's top chain drug
retailer based on store count with over 4,000 stores in 24 states and the
District of Columbia. The combined company is expected to have net sales of
approximately $15 billion in 1998, and is expected to dispense approximately 12%
of the retail prescriptions in the United States.
The Company expects that the CVS/Arbor Merger will be accretive to earnings
(before one-time merger-related charges) in the first full year of operations.
The Company also expects to achieve cost savings from the combined operations of
approximately $30 million annually, primarily through the closing of Arbor's
headquarters, the achievement of economies of scale in advertising, distribution
and other operational areas, and the spreading of its investments in information
technology over a broader store base.
See "Cautionary Statement Concerning Forward Looking Statements." See also
Note 2 to the consolidated condensed financial statements for further
information about the CVS/Arbor Merger and the Arbor Restructuring Charge
(defined below).
12
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
CVS/Revco Merger
On May 29, 1997, CVS completed a merger with Revco D.S., Inc. ("Revco"),
pursuant to which on a post two-for-one common stock split basis, approximately
120.6 million shares of CVS common stock were issued for all of the outstanding
common stock of Revco (the "CVS/Revco Merger").
The CVS/Revco Merger, which constituted a tax-free reorganization, has been
accounted for as a pooling of interests under APB Opinion No. 16. 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. See Note 3 to the consolidated condensed
financial statements for further information about the CVS/Revco Merger and the
Revco Restructuring Charge (defined below).
Other Matters
On May 13, 1998, the Company's shareholders approved an increase in the
number of authorized common shares from 300 million to one billion. On that
date, the Board of Directors authorized a two-for-one common stock split to be
effected by the issuance of one additional share of common stock for each share
of common stock outstanding. Such shares were distributed on June 15, 1998 to
shareholders of record as of May 25, 1998. In addition, the Board of Directors
authorized an increase in the post two-for-one common stock split quarterly
common stock cash dividend from $0.055 per share to $0.0575 per share.
Results of Operations
Second Quarter (1998 versus 1997)
Net sales for the second quarter of 1998 increased $349.1 million or 10.2%
to $3.8 billion, compared to $3.4 billion in the second quarter of 1997. Same
store sales, consisting of sales from stores that have been open for more than
one year, rose 11.7%, with pharmacy same store sales increasing 15.4%. Pharmacy
sales were 57% of total sales in the second quarter of 1998, compared to 55% in
the second quarter of 1997. Third party prescription sales were 83% of pharmacy
sales during the second quarter of 1998, compared to 80% in the second quarter
of 1997. Such increases in net sales and same store sales for the second quarter
of 1998 were positively impacted by the shift in the Easter selling season from
the first quarter of 1997 to the second quarter of 1998. In addition, net sales
were negatively impacted by a reduction in total store count from 4,120 at June
28, 1997 to 4,056 at June 27, 1998 which resulted primarily from the divestiture
of 120 Revco stores pursuant to a consent decree with the Federal Trade
Commission entered into in connection with the CVS/Revco Merger.
Net sales continue to benefit from the Company's efforts to elevate the
performance level of the Revco stores by converting all retained Revco stores
into the CVS store format. This conversion process consists of three elements:
converting the Revco point-of-sale and pharmacy computer systems to CVS systems,
revising the Revco planograms to reflect the CVS merchandise mix and remodeling
the Revco stores to the "look and feel" of a CVS store. As of July 30, 1998, the
Company had completed the conversion of Revco's systems as well as the revision
of all Revco planograms (except for cosmetics which will be completed as the
remaining Revco stores are remodeled). In addition, as of such date, the Company
had remodeled approximately 1,470 Revco stores and expected to complete the
remodeling process for the remaining 425 stores by October 1998. Further, the
Company is in the process of relocating many of the Revco stores (as well as
many CVS stores) from in-line strip center locations to free-standing sites. As
a result of these efforts, the Company has begun to make progress in elevating
the performance level of the Revco store base, especially with regard to front
end sales. However, the increased sales performance has been aided by temporary
promotional sales efforts and the rate of progress has varied (and is expected
to continue to vary) on a market-by-market basis.
13
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Gross margin for the second quarter of 1998 increased $147.5 million or
16.9% to $1.0 billion, compared to $873.0 million in the second quarter of 1997.
Gross margin as a percentage of net sales for the second quarter of 1998 was
27.2%, compared to 25.6% of net sales in the second quarter of 1997. It is
important to note that during the second quarter of 1998, the Company recorded a
$10.0 million charge to cost of goods sold to reflect markdowns on
non-compatible Arbor merchandise (the "Arbor Inventory Markdown"). The Company
also recorded a $75.0 million charge to cost of goods sold during the second
quarter of 1997 to reflect markdowns on non-compatible Revco merchandise, (the
"Revco Inventory Markdown"). Excluding the effect of the Arbor Inventory
Markdown in 1998 and the Revco Inventory Markdown in 1997, comparable gross
margin increased $82.5 million or 8.7% to $1.0 billion, or 27.4% of net sales,
compared to $948.0 million or 27.8% of net sales during the prior year period.
The decline in comparable gross margin as a percentage of net sales in 1998 was
primarily due to the continued increase in lower gross margin third party
prescription sales, the continued increase in pharmacy sales as a percentage of
total sales and the increase in promotional activity primarily resulting from
the name change events being held in certain Revco markets (collectively, the
"Gross Margin Factors").
In recent years, the Company has experienced a reduction in pharmacy gross
margin due to the efforts of managed care organizations and other third party
payors to reduce prescription drug costs. To address this trend, in certain
circumstances, the Company has declined to participate in certain third party
programs that failed to satisfy minimum profitability standards. In the event
this trend continues and the Company decides to decline participation in
additional third party programs and/or terminate programs that fall below
minimum profitability standards, the Company may be unable to sustain its
current rate of sales growth.
Total operating expenses for the second quarter of 1998 were $945.9 million
or 25.2% of net sales, compared to $1.2 billion or 34.2% of net sales in the
second quarter of 1997. It is important to note that: (i) during the second
quarter of 1998, the Company recorded a $158.3 million charge to operating
expenses for direct and other merger-related costs pertaining to the CVS/Arbor
Merger transaction and certain restructuring activities (the "Arbor
Restructuring Charge") and (ii) during the second quarter of 1997 recorded a
$411.7 million charge to operating expenses for direct and other merger-related
costs pertaining to the CVS/Revco Merger transaction and certain restructuring
activities (the "Revco Restructuring Charge").
Excluding the effect of the Arbor Restructuring Charge in 1998 and the
Revco Restructuring Charge in 1997, comparable operating expenses were $787.6
million or 21.0% of net sales in the second quarter of 1998, compared to $752.4
million or 22.1% of net sales in the second quarter of 1997. The improvement in
comparable operating expenses as a percentage of net sales was primarily due to:
(i) sales in the Company's existing store base growing at a faster rate than
operating costs, (ii) the elimination of Revco's administrative expenses, (iii)
the consolidation of CVS' and Arbor's administrative functions and (iv)
continued efficiencies derived from technology investments (collectively, the
"Operating Expense Improvement Factors").
Operating profit (loss) for the second quarter of 1998 increased $365.7
million or 125.6% to $74.6 million, compared to a loss of $291.1 million for the
second quarter of 1997. Excluding the effect of the Arbor Inventory Markdown and
the Arbor Restructuring Charge (collectively, the "Arbor Charges") in 1998 and
the Revco Inventory Markdown and the Revco Restructuring Charge (collectively,
the "Revco Charges") in 1997, comparable operating profit for the second quarter
of 1998 increased $47.3 million or 24.2% to $242.9 million, compared to $195.6
million in the second quarter of 1997. Comparable operating profit as a
percentage of net sales was 6.5% in the second quarter of 1998, compared to 5.7%
in the second quarter of 1997.
14
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Interest expense, net for the second quarter of 1998 was $18.9 million,
compared to $16.2 million in the second quarter of 1997. Interest expense for
the second quarter of 1998 decreased $0.2 million to $21.1 million, compared to
$21.3 million in the second quarter of 1997, primarily due to lower weighted
average borrowing rates during 1998. Interest income for the second quarter of
1998 decreased $2.9 million to $2.2 million, compared to $5.1 million in the
second quarter of 1997. Interest income in the second quarter of 1997 included
interest realized on notes receivable that were received as a portion of the
proceeds from the sale of certain operating businesses. These notes were sold
during 1997.
Earnings (loss) from continuing operations before extraordinary item for
the second quarter of 1998 increased $237.6 million to $16.2 million, compared
to a loss of $221.4 million in the second quarter of 1997. Excluding the effect
of the Arbor Charges in 1998 and the Revco Charges in 1997, comparable earnings
from continuing operations before extraordinary item increased $27.7 million or
27.1% to $129.9 million, or $0.32 per diluted share, compared to $102.2 million,
or $0.26 per diluted share in the second quarter of 1997.
Net earnings (loss), including the Arbor Charges, the Revco Charges,
discontinued operations and the extraordinary item related to the early
retirement of certain Revco debt during the second quarter of 1997 (the
"Extraordinary Item"), increased to $16.2 million, or $0.03 per diluted share,
during the second quarter of 1998, compared to a net loss of $221.1 million, or
$0.60 per diluted share, in the second quarter of 1997.
Six Months (1998 versus 1997)
Net sales for the first six months of 1998 increased $552.8 million or 8.1%
to $7.4 billion, compared to $6.8 billion in the first six months of 1997. Same
store sales rose 9.6%, with pharmacy same store sales increasing 15.0%. Pharmacy
sales were 57% of total sales for the first six months of 1998, compared to 55%
for the first six months of 1997. Third party prescription sales were 83% of
pharmacy sales for the first six months of 1998, compared to 80% in the first
six months of 1997. See "Second Quarter (1998 versus 1997)" above for further
information about factors affecting net sales.
Gross margin for the first six months of 1998 increased $186.5 million or
10.1% to $2.0 billion, compared to $1.8 billion in the first six months of 1997.
Excluding the effect of the Arbor Inventory Markdown in 1998 and the Revco
Inventory Markdown in 1997, comparable gross margin increased to $2.0 billion or
27.7% of net sales for the first six months of 1998, compared to $1.9 billion or
28.2% of net sales in the first six months of 1997. The decline in gross margin
as a percentage of net sales in 1998 was primarily due to the Gross Margin
Factors.
Total operating expenses for the first six months of 1998 were $1.7 billion
or 23.3% of net sales, compared to $2.0 billion or 28.7% of net sales in the
first six months of 1997. Excluding the Arbor Restructuring Charge in 1998, the
Revco Restructuring Charge in 1997 and the $31.0 million charge recorded during
the first quarter of 1997 for certain non-capitalizable costs associated with
the restructuring of Big B, Inc. (the "Big B Charge"), comparable operating
expenses for the first six months of 1998 were $1.6 billion or 21.1% of net
sales, compared to $1.5 billion or 22.2% of net sales in the first six months of
1997. The improvement in comparable operating expenses as a percentage of net
sales was primarily due to the Operating Expense Improvement Factors.
Operating profit (loss) for the first six months of 1998 increased $428.6
million or 372.4% to $313.5 million, compared to a loss of $115.1 million in the
first six months of 1997. Excluding the effect of the Arbor Charges in 1998 and
the Revco Charges and the Big B Charge in 1997, comparable operating profit
increased $79.2 million or 19.7% to $481.8 million in the first six months of
1998, compared to $402.6 million in the first six months of 1997. Comparable
operating profit as a percentage of net sales was 6.6% in the first six months
of 1998, compared to 5.9% in the first six months of 1997.
15
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Interest expense, net for the first six months of 1998 was $30.1 million,
compared to $29.1 million in the first six months of 1997. Interest expense for
the first six months of 1998 decreased $6.4 million to $34.2 million, compared
to $40.6 million in the first six months of 1997, primarily due to reduced
borrowing levels and lower weighted average borrowing rates. Interest income for
the first six months of 1998 decreased $7.4 million to $4.1 million, compared to
$11.5 million in the first six months of 1997. Interest income in the first six
months of 1997 included interest realized on notes receivable that were received
as a portion of the proceeds from the sale of certain operating businesses.
These notes were sold during 1997.
Earnings (loss) from continuing operations before extraordinary item for
the first six months of 1998 increased to $148.2 million, compared to a loss of
$129.3 million in the first six months of 1997. Excluding the effect of the
Arbor Charges in 1998 and the Revco Charges and the Big B Charge in 1997,
comparable earnings from continuing operations before extraordinary item
increased $48.5 million or 22.7% to $261.9 million or $0.65 per diluted share
for the first six months of 1998, compared to $213.4 million or $0.54 per
diluted share for the first six months of 1997.
Net earnings (loss) including the Arbor Charges, the Revco Charges, the Big
B Charge, discontinued operations and the Extraordinary Item for the first six
months of 1998 were $148.2 million or $0.36 per diluted share, compared to a net
loss of $128.9 million or $0.37 per diluted share for the first six months of
1997.
Liquidity and Capital Resources
The Company has three primary sources of liquidity: (i) cash provided by
operations, (ii) commercial paper and (iii) uncommitted lines of credit.
The Company issues commercial paper to finance, in part, its seasonal
inventory requirements and capital expenditures. The commercial paper program is
supported by a $670 million, five year unsecured revolving credit facility which
expires on May 30, 2002 and a $460 million, 364 day unsecured revolving credit
facility which expires on June 26, 1999 (collectively the "Credit Facilities").
On June 26, 1998 the Company replaced its former $300 million credit facility,
due to expire on June 30, 1998, with the $460 million credit facility. 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 or operating flexibility. The Company
can also obtain up to $35 million of short-term financing through various
uncommitted lines of credit. As of June 27, 1998, the Company had $650.0 million
of commercial paper outstanding at a weighted average interest rate of 5.8% and
$23.9 million outstanding under various uncommitted lines of credit at a
weighted average interest rate of 5.7%.
Management believes that the Company's cash on hand and cash provided by
operations, together with its ability to obtain additional short-term and
long-term financing, will be sufficient to cover its working capital needs,
capital expenditures, debt service requirements and future cash outlays
associated with the integration of Revco and Arbor.
16
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the six months ended June 27, 1998, cash and cash equivalents decreased
$130.5 million to $62.0 million. The decrease in 1998 was primarily attributable
to the following:
Net cash used in operating activities increased to $26.5 million for the
first six months of 1998, compared to $17.4 million during the first six months
of 1997. The increase was primarily due to an increase in inventory, a decrease
in accounts payable and to cash outlays associated with the integration of Arbor
and Revco. The increase in inventory was primarily the result of: (i) improving
the in-stock position of everyday merchandise in the converted Revco stores
prior to initiating promotional name change events and (ii) increasing inventory
levels in the Company's distribution centers to: (a) ensure that stores are
properly serviced during distribution center realignments and (b) enable the
Company to reduce the level of lower gross margin product being purchased from
pharmacy wholesalers rather than directly from manufacturers. The Company
believes, however, that its current inventory level should be reduced and
intends to do so by the end of 1998 without incurring significant markdowns. The
Company intends to finance the temporary increase in inventory with short-term
borrowings and, as a result, expects to incur additional interest expense. The
Company believes, however, that the additional interest expense will be offset
by improved operating performance.
Net cash used in investing activities increased to $204.1 million during
the first six months of 1998, compared to net cash provided by investing
activities of $149.4 million during the first six months of 1997. The increase
was primarily due to higher capital expenditures in 1998 and a decrease in the
proceeds received from the sale of investments. During the second quarter of
1997, the Company sold its remaining investment in Linens `n Things, Inc. and a
note receivable that was received as a portion of the proceeds from the sale of
a former operating business for total proceeds of $247.1 million.
During the second quarter of 1998, the Company opened 82 stores, including
42 relocations, and closed 48 stores. Year-to-date, the Company opened 148
stores, including 79 relocations, and closed 107 stores. The Company currently
plans to open approximately 170 additional stores, about half of which will be
relocations, during the remainder of 1998 and approximately 375 stores, about
half of which will be relocations, during 1999. The Company is presently
evaluating whether or not to accelerate its store development program. As of
June 27, 1998, the Company operated 4,056 stores in 24 states and the District
of Columbia, compared to 4,120 stores as of June 28, 1997.
Net cash provided by financing activities increased to $100.1 million
during the first six months of 1998, compared to net cash used in financing
activities of $529.8 million during the first six months of 1997. The increase
in 1998 was primarily due to the cash used during the second quarter of 1997 to
retire certain Revco debt and to an increase in short-term borrowings during
1998.
Year 2000
The Year 2000 issue relates to the inability of certain computer software
programs to properly recognize and process date-sensitive information relative
to the year 2000 and beyond. Since 1995, the Company has been actively
addressing the Year 2000 issue to identify and modify or replace all impacted
systems. Based on currently available information, management expects to
identify and complete all modifications required to support the Year 2000 in a
timely manner and believes that the cost of such modifications will not have a
material impact on the Company's results of operations, liquidity or capital
resources. The Company has also communicated with its key vendors and suppliers
to identify the nature and potential impact of issues presented by the Year 2000
on the businesses of such vendors and suppliers. Management is not presently
aware of any vendor or supplier-related issue presented by the Year 2000 that is
likely to have a material impact on the Company.
17
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Discriminatory Pricing Litigation Against Drug Manufacturers
The Company is a party to two lawsuits which have been filed against
various pharmaceutical manufacturers and wholesalers. One lawsuit is a class
action (of which CVS is a member of the class) that alleges conspiracy to fix
and/or stabilize prices of prescription drugs sold to retail pharmacies by
manufacturers and wholesalers in violation of the Sherman Antitrust Act (the
"Class Action"). The other lawsuit was filed by individual chain pharmacies
(including Revco) and alleges unlawful price discrimination against retail
pharmacies by manufacturers and wholesalers in violation of the Robinson-Patman
Act (the "Non-Class Action"). CVS became a party to the Non-Class Action upon
its merger with Revco.
With respect to the Class-Action, it was recently announced that four
defendants had agreed to settlements aggregating approximately $350 million.
Prior to this agreement, eleven other defendants had agreed to settlements
aggregating approximately $370 million. There remains four defendants who are
expected to settle or go to trial in mid-September 1998. Assuming settlements
with the remaining defendants at similar levels, the total settlement could
exceed $1 billion. Final approval by the court of the most recent settlements is
pending, and the court must also approve a formula for distribution of the total
proceeds to class members. While CVS' portion of any such total settlement of
the Class Action would be significant, an exact dollar amount is difficult to
predict at this time.
With respect to the Non-Class Action, a few settlements have been reached
to date and the case is expected to go to trial in the early part of 1999. The
Company's portion of any settlement or judgment of the Non-Class Action could be
significant.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires
companies to report financial information based on how management internally
organizes information to make operating decisions and assess performance. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits." SFAS No. 132 revises the disclosure
requirements for pensions and other postretirement benefit plans. This
statement, however, does not change any of the measurement or recognition
provisions required under previous guidance. Both statements are effective for
fiscal years beginning after December 15, 1997. The Company is in the process of
determining what impact, if any, these pronouncements will have on its financial
statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," effective for fiscal years
beginning after December 15, 1998. SOP 98-1 defines which costs incurred to
develop or purchase internal-use software should be capitalized and which should
be expensed. The Company is in the process of determining what impact, if any,
this pronouncement will have on its financial statements.
18
Part I Item 2
================================================================================
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary Statement Concerning Forward Looking Statements
We have made forward-looking statements in this Form 10-Q (as well as in
other public filings, press releases and discussions with Company management)
that are subject to risks and uncertainties. Forward-looking statements include
the information concerning: future results of operations, revenues, sales
growth, dispensing of retail prescriptions, cost savings and synergies of the
Company following the merger with Revco and the merger with Arbor; the ability
of the Company to continue to elevate the performance level of Revco stores
following the merger with Revco; the ability of the Company to continue to
achieve significant sales growth; the Company's belief that it can continue to
improve operating performance by relocating existing stores to freestanding
locations; the Company's belief that it can continue to reduce selling, general
and administrative expenses as a percentage of net sales; the Company's belief
that it can reduce inventory levels by the end of 1998; and the information
concerning the ability of the Company and its key vendors and suppliers to
successfully manage issues presented by the Year 2000; 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 Form 10-Q (including the notes to the consolidated
condensed financial statements included herein), in our Annual Report on Form
10-K for the year ended December 31, 1997, and in our other public filings,
press releases and discussions with Company management, could affect the future
results of the Company and could cause those results to differ materially from
those expressed in our forward-looking statements: materially adverse changes in
economic conditions generally in the markets served by the Company; future
regulatory and legislative actions affecting the Company and/or the chain-drug
industry generally (such as the current Federal and state industry-wide inquiry
into billing practices for Medicaid prescriptions); competition from other
drugstore chains; from alternative distribution channels such as supermarkets,
membership clubs, other retailers and mail order companies, and from 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 the Company following the merger
with Revco and the merger with Arbor, including: risks relating to the Company's
ability to combine the businesses of three major corporations while maintaining
current operating performance levels during the integration period and the
challenges inherent in diverting the Company's management focus and resources
from other strategic opportunities and from operational matters for an extended
period of time; the Company's ability to continue to secure suitable new store
locations on favorable lease terms as it seeks to open new stores and relocate a
portion of its existing store base to freestanding locations; the Company's
ability to continue to purchase inventory on favorable terms; the Company's
ability to establish effective promotional and pricing strategies in the
different geographic markets in which it operates; the Company's ability to
attract, hire and retain suitable pharmacists and management personnel;
relationships with suppliers; and the impact of inflation.
19
Part I Item 3
================================================================================
Quantitative and Qualitative Disclosures About Market Risk
The Company has not entered into any transactions using derivative
financial or commodity instruments and believes that its exposure to market
risk, principally interest rate risk inherent in its debt portfolio, is not
material.
20
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 the
Company's Annual Meeting of Shareholders held on Wednesday, May 13, 1998, 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 April 2, 1998,
was approved by the following votes:
Eugene Applebaum 162,501,602 596,637 -- --
Allan J. Bloostein 162,490,325 607,914 -- --
W. Don Cornwell 162,504,515 593,724 -- --
Thomas P. Gerrity 162,364,160 734,079 -- --
Stanley P. Goldstein 162,440,867 657,372 -- --
William H. Joyce 162,504,157 594,082 -- --
Terry R. Lautenbach 162,479,678 618,561 -- --
Terrence Murray 162,498,344 599,895 -- --
Sheli Z. Rosenberg 162,355,947 742,292 -- --
Thomas M. Ryan 162,498,599 599,640 -- --
Ivan G. Seidenberg 162,435,774 662,465 -- --
Thomas O. Thorsen 162,469,721 628,518 -- --
2. The proposal to increase the number of authorized
shares of the Company's common stock from 300
million shares to one billion shares was approved
by the following vote: 138,937,157 23,417,220 743,862 14,951,406
3. The appointment of KPMG Peat Marwick LLP as
the Company's independent auditors for the year
ending December 31, 1998 was approved by the
following vote: 162,661,954 90,693 345,592 14,951,406
====================================================================================================================
21
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
10.1 CVS Deferred Compensation Plan
10.2 Partnership Equity Program
11.1 Computation of Per Share Earnings (incorporated by reference
to Note 6 to the consolidated condensed financial statements,
included herein)
15.1 Letter re: Unaudited Interim Financial Information
27.1 Financial Data Schedule - June 27, 1998
27.2 Restated Financial Data Schedule - March 28, 1998
27.3 Restated Financial Data Schedule - December 31, 1997
27.4 Restated Financial Data Schedule - September 27, 1997
27.5 Restated Financial Data Schedule - June 28, 1997
27.6 Restated Financial Data Schedule - March 29, 1997
27.7 Restated Financial Data Schedule - December 31, 1996
27.8 Restated Financial Data Schedule - September 28, 1996
27.9 Restated Financial Data Schedule - June 29, 1996
27.10 Restated Financial Data Schedule - March 30, 1996
27.11 Restated Financial Data Schedule - December 31, 1995
Reports on Form 8-K:
- --------------------
On April 3, 1998, the Registrant filed a Current Report on Form
8-K in connection with the Registrant's completion of the merger of CVS
Corporation and Arbor Drugs, Inc.
On May 8, 1998, the Registrant filed a Current Report on Form 8-K
in connection with complying with a covenant contained in its Merger
Agreement with Arbor Drugs, Inc. that required CVS to report interim
results for a 30-day period following the effective time of the merger
of CVS Corporation and Arbor Drugs, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CVS Corporation
(Registrant)
/s/ Charles C. Conaway
- ----------------------
CHARLES C. CONAWAY
Executive Vice President and Chief Financial Officer
August 11, 1998
22