================================================================================
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
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification Number)
One CVS Drive, Woonsocket, Rhode Island 02895
---------------------------------------------
(Address of principal executive offices)
Telephone: (401) 765-1500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Common Stock, $0.01 par value, outstanding at August 3, 1998:
389,337,279 shares
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<PAGE>
================================================================================
INDEX
<TABLE>
<CAPTION>
Page
Part I
<S> <C>
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
</TABLE>
2
<PAGE>
Part I Item 1
================================================================================
CVS Corporation
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
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
=============================================================================================================================
<S> <C> <C> <C> <C>
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
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
Part I Item 1
================================================================================
CVS Corporation
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 27, December 31,
In millions 1998 1997
=========================================================================================================================
<S> <C> <C>
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
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
Part I Item 1
================================================================================
CVS Corporation
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 27, June 28,
In millions 1998 1997
==================================================================================
<S> <C> <C>
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
==================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
Part I Item 1
================================================================================
CVS Corporation
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1
The accompanying consolidated condensed financial statements of CVS
Corporation ("CVS" or the "Company") have been prepared without audit, in
accordance with the rules 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
<PAGE>
Part I Item 1
================================================================================
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:
<TABLE>
<CAPTION>
================================================================================
Arbor
Restructuring Balance
In millions Charge Utilized at 6/27/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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
================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
================================================================================
Three Months Ended
In millions March 28, 1998 March 29, 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
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
================================================================================
</TABLE>
7
<PAGE>
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:
<TABLE>
<CAPTION>
==============================================================================
Revco
Restructuring Balance at
In millions Charge Utilized June 27, 1998
------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==============================================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
====================================================================================================================
Three Months Ended Six Months Ended
Per Per
Common Common
In millions, except per common share amounts Earnings Shares Share Earnings Shares Share
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
=====================================================================================================================
</TABLE>
9
<PAGE>
Part I Item 1
================================================================================
CVS Corporation
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 7
Following are the components of net interest expense:
<TABLE>
<CAPTION>
=============================================================================================================
Three Months Ended Six Months Ended
In millions June 27, 1998 June 28, 1997 June 27, 1998 June 28, 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=============================================================================================================
</TABLE>
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
<PAGE>
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
<PAGE>
Part I Item 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 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
====================================================================================================================
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:
<S> <C> <C> <C> <C>
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
====================================================================================================================
</TABLE>
21
<PAGE>
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
EXHIBIT 3.2
BY-LAWS
OF
CVS CORPORATION
(as amended May 13, 1998)
-------------------
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the stockholders of
the corporation, for the purpose of electing directors and for the transaction
of such other business as may be brought before the meeting, shall be held at
the principal office of the corporation, or at such other place within or
without the State of Delaware stated in the notice of the meeting as the Board
of Directors may determine, on the second Tuesday of May of each year (unless
such day shall be a legal holiday, in which case the annual meeting shall be
held on the next succeeding day not a legal holiday), or on such other day in
the month of May as the Board of Directors may determine, at 10:00 o'clock in
the forenoon, Rhode Island time, or at such other hour stated in the notice of
the meeting as the Board of Directors may determine.
Section 2. SPECIAL MEETINGS. Special meetings of stockholders may be
called by the Board of Directors, the Chairman of the Board of Directors or the
Chief Executive Officer and may not be called by any other person.
Special meetings shall be held at such place within or without the
State of Delaware as is specified in the call thereof.
Section 3. NOTICE OF MEETING; WAIVER. Unless otherwise required by
statute, the notice of every meeting of the stockholders shall be in writing and
signed by the Chairman of the Board of Directors or the Chief Executive Officer
(or the President or a Vice President or the Secretary or an Assistant
Secretary, in each case acting at the direction of the Chairman or the Chief
Executive Officer) and shall state the time when and the place where it is to be
held, and a copy thereof shall be served, either personally or by mail, upon
each stockholder of record entitled to vote at such meeting, not less than ten
nor more than sixty days before the meeting. If the meeting to be held is other
than the annual meeting of stockholders, the notice shall also state the purpose
or purposes for which the meeting is called and shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting. If,
at any meeting, action is proposed to be taken which would, if taken, entitle
stockholders to receive payment for their shares pursuant to Section 262 of the
General Corporation Law of the State of Delaware, the notice of such meeting
shall include a statement of that purpose and to that effect. If the notice is
mailed, it shall be directed to a stockholder at the stockholder's address as it
appears on the record of stockholders unless the stockholder shall have filed
with the
<PAGE>
Secretary of the corporation a written request that notices intended for the
stockholder be mailed to some other address, in which case it shall be mailed to
the address designated in such request.
Notice of a meeting need not be given to any stockholder who submits a
signed waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of a stockholder at a meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute a waiver of notice by the stockholder.
Section 4. QUORUM. At any meeting of the stockholders the holders of a
majority of the shares entitled to vote and being present in person or
represented by proxy shall constitute a quorum for all purposes, unless the
representation of a different number shall be required by law or by another
provision of these by-laws, and in that case the representation of the number so
required shall constitute a quorum.
If the holders of the amount of shares necessary to constitute a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or represented by proxy at the meeting may adjourn from
time to time without further notice other than by an announcement made at the
meeting. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 5. ORGANIZATION. The Chairman of the Board of Directors or, in
his absence, the Chief Executive Officer or, in his absence, the President, any
Executive Vice President, Senior Vice President or Vice President in the order
of their seniority or in such other order as may be designated by the Board of
Directors, shall call meetings of the stockholders to order and shall act as
chairman of such meetings. The Board of Directors or the Executive Committee may
appoint any stockholder to act as chairman of any meeting in the absence of any
of such officers and in the event of such absence and the failure of such board
or committee to appoint a chairman, the stockholders present at such meeting may
nominate and appoint any stockholder to act as chairman.
The Secretary of the corporation, or, in his absence, an Assistant
Secretary, shall act as secretary of all meetings of stockholders, but, in the
absence of said officers, the chairman of the meeting may appoint any person to
act as secretary of the meeting.
Section 6. VOTING. At each meeting of the stockholders every
stockholder of record having the right to vote shall be entitled to vote either
in person or by proxy.
Section 7. ACTION BY WRITTEN CONSENT. Any action required or permitted
to be taken at any annual or special meeting of stockholders may be taken
without a meeting on written consent, setting forth the action so taken, signed
by the holders of all outstanding shares entitled to vote thereon. Written
consent thus given by
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the holders of all outstanding shares entitled to vote shall have the same
effect as a unanimous vote of the stockholders.
Section 8. INSPECTORS OF ELECTION. The Board of Directors, in advance
of any stockholders' meeting, may appoint one or more Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors are not so
appointed, the person presiding at a stockholders' meeting may, and on the
request of any stockholder entitled to vote thereat, shall appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board in advance of the meeting or at the
meeting by the person presiding thereat. Inspectors shall be sworn.
Section 9. CONDUCT OF ELECTION. At each meeting of the stockholders,
votes, proxies, consents and ballots shall be received, and all questions
touching the qualification of voters, the validity of proxies and the acceptance
or rejection of votes, shall be decided by the Inspectors of Election.
ARTICLE II
BOARD OF DIRECTORS
Section 1. NUMBER OF DIRECTORS. The number of directors of the
corporation shall be not less than three nor more than eighteen, as determined
by action of the Board of Directors.
Section 2. TERM AND VACANCIES. Directors shall be elected at the annual
meeting of stockholders to hold office until the next annual meeting and until
their respective successors have been duly elected and have qualified.
Vacancies in the Board of Directors occurring between annual meetings,
from any cause whatsoever including vacancies created by an increase in the
number of directors, shall be filled by the vote of a majority of the remaining
directors, though less than a quorum.
Directors need not be stockholders.
Section 3. GENERAL POWERS OF DIRECTORS. The business of the corporation
shall be managed under the direction of its Board of Directors subject to the
restrictions imposed by law, by the corporation's certificate of incorporation
and amendments thereto, or by these by-laws.
Section 4. MEETINGS OF DIRECTORS. The directors may hold their meetings
and may keep an office and maintain the books of the corporation, except as
otherwise provided by statute, in such place or places in the State of Delaware
or outside the State of Delaware as the Board may, from time to time, determine.
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Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting if all of the directors consent in writing to the
adoption of a resolution authorizing the action, and in such event the
resolution and the written consent of all directors thereto shall be filed with
the minutes of the proceedings of the Board of Directors.
Any one or more directors may participate in a meeting of the Board of
Directors by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at the principal office of the corporation in the County of
Providence, Town of Woonsocket, State of Rhode Island, or at such other place
within or without the State of Delaware as shall be designated in the notice of
the meeting as follows: One meeting shall be held immediately following the
annual meeting of stockholders and further meetings shall be held at such
intervals or on such dates as may from time to time be fixed by the directors,
all of which meetings shall be held upon not less than four days' notice served
upon each director by mailing such notice to the director at the director's
address as the same appears upon the records of the corporation, except the
meeting which shall be held immediately following the annual meeting of
stockholders which meeting shall be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by the direction of the Chairman of the Board of
Directors, or of the Chief Executive Officer of the corporation, or of one-third
of the directors at the time in office. The Secretary shall give notice of each
special meeting by mailing such notice not less than four days, or by
telegraphing or telecopying such notice not less than two days, before the date
set for a special meeting, to each director.
Section 7. WAIVER. Notice of a meeting need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
Section 8. QUORUM. One-third of the total number of directors shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there be less than a quorum present, the majority of those present may
adjourn the meeting from time to time.
Section 9. ORDER OF BUSINESS. At meetings of the Board of Directors
business shall be transacted in such order as the Board may fix and determine.
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At all meetings of the Board of Directors, the Chairman of the Board of
Directors, or in his absence, the Chief Executive Officer, or in the absence of
both, the President, any Executive Vice President or any Vice President
(provided such person be a member of the Board) shall preside.
Section 10. ELECTION OF CHAIRMAN, OFFICERS AND COMMITTEES. At the first
regular meeting of the Board of Directors in each year, at which a quorum shall
be present, held next after the annual meeting of the stockholders, the Board of
Directors shall proceed to the election of the executive officers of the
corporation (including the Chairman of the Board), and of the Executive
Committee, if the Board of Directors shall provide for such committee under the
provisions of Article III hereof.
The Board of Directors from time to time may fill any vacancies among
the executive officers, members of the Executive Committee and members of other
committees, and may appoint additional executive officers and additional members
of such Executive Committee or other committees.
Section 11. COMPENSATION. Directors who are not officers or employees
of the corporation or any of its subsidiaries may receive such remuneration as
the Board may fix, in addition to a fixed sum for attendance at each regular or
special meeting of the Board or a Committee of the Board; provided, however,
that nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity or receiving compensation
therefor. In addition, each director shall be entitled to reimbursement for
expenses incurred in attending any meeting of the Board or Committee thereof.
ARTICLE III
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. The Board of Directors by resolution
adopted by a majority of the entire Board, may designate from the Directors an
Executive Committee consisting of three or more, to serve at the pleasure of the
Board. At all times when the Board of Directors is not in session, the Executive
Committee so designated shall have and exercise the powers of the Board of
Directors, except that such committee shall have no authority as to the matters
set out in Section 3 of this Article III.
Meetings of the Executive Committee shall be called by any member of
the same, on three days' mailed notice, or one day's telegraphed or telecopied
notice to each of the other members, stating therein the purpose for which such
meeting is to be held. Notice of meeting may be waived, in writing, by any
member of the Executive Committee.
All action by the Executive Committee shall be recorded in its minutes
and reported from time to time to the Board of Directors.
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The Executive Committee shall fix its own rules of procedure and shall
meet where and as provided by such rules or by resolution of the Board of
Directors.
Any action required or permitted to be taken by the Executive Committee
may be taken without a meeting if all of the members of the Executive Committee
consent in writing to the adoption of a resolution authorizing the action, and
in such event the resolution and the written consent of all members of the
Executive Committee thereto shall be filed with the minutes of the proceedings
of the Executive Committee.
Any one or more members of the Executive Committee may participate in a
meeting of the Executive Committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
Section 2. OTHER COMMITTEES. The Board of Directors may appoint such
other committees, of three or more, as the Board shall, from time to time, deem
advisable, which committees shall have and may exercise such powers as shall be
prescribed, from time to time, by resolution of the Board of Directors, except
that such committees shall have no authority as to the matters set out in
Section 3 hereof.
Actions and recommendations by each committee which shall be appointed
pursuant to this section shall be recorded and reported from time to time to the
Board of Directors.
Each such committee shall fix its own rules of procedure and shall meet
where and as provided by such rules or by resolution of the Board of Directors.
Any action required or permitted to be taken by any such committee may
be taken without a meeting if all of the members of such committee consent in
writing to the adoption of a resolution authorizing the action, and in such
event the resolution and the written consent of all members of such committee
thereto shall be filed with the minutes of the proceedings of such committee.
Any one or more members of any such committee may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
Section 3. LIMITATIONS. No committee shall have authority as to the
following matters:
(1) The submission to stockholders of any action that needs
stockholders' authorization.
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(2) The filling of vacancies in the Board of Directors or in any
committee.
(3) The fixing of compensation of the directors for serving on the
Board or on any committee.
(4) The amendment or repeal of the by-laws, or the adoption of new
by-laws.
(5) The amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
Section 4. ALTERNATES. The Board may designate one or more directors as
alternate members of any such committees, who may replace any absent member or
members at any meeting of such committees.
Section 5. COMPENSATION. Members of special or standing committees may
receive such salary for their services as the Board of Directors may determine;
provided, however, that nothing herein contained shall be construed to preclude
any member of any such committee from serving the corporation in any other
capacity or receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. TITLES AND TERMS OF OFFICE. The executive officers of the
corporation shall be a Chairman of the Board of Directors, a Chief Executive
Officer and a President, each of whom shall be a member of the Board of
Directors, such number of Executive Vice Presidents, Senior Vice Presidents and
Vice Presidents as the Board of Directors shall determine, and a Controller, a
Treasurer and a Secretary, all of whom shall be chosen by the Board of
Directors.
The Board of Directors may also appoint one or more Assistant
Secretaries and one or more Assistant Treasurers, and such other junior officers
as it shall deem necessary, who shall have such authority and shall perform such
duties as from time to time may be prescribed by the Board of Directors.
Any two or more offices except President and Vice President may be held
by the same person.
The officers of the corporation shall each hold office for one year and
until their successors are chosen and qualified, and shall be subject to removal
at any time by the affirmative vote of the majority of the entire Board of
Directors.
Section 2. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a Chairman of the Board (or one or more Co-Chairmen of the Board). The
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Chairman of the Board shall preside over the meetings of the Board of Directors
and of the stockholders at which he will be present. If there be more than one,
the Co-Chairmen designated by the Board of Directors will perform such duties.
The Chairman or Chairmen of the Board shall perform such other duties as may be
assigned to him or them by the Board of Directors.
Section 3. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
corporation shall have general management and control over the policy, business
and affairs of the corporation and shall have such other authority and perform
such other duties as usually appertain to a chief executive officer of a
business corporation. He shall exercise the powers of the Chairman of the Board
of Directors during his absence or inability to act.
Section 4. PRESIDENT. The President, if any, shall have such authority
and shall perform such duties as the Board of Directors, the Executive
Committee, or the Chief Executive Officer may from time to time determine.
Section 5. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE
PRESIDENTS. The Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents, if any, shall be designated and shall have such powers and perform
such duties as may be assigned to them by the Board of Directors, the Executive
Committee, the Chief Executive Officer or the President. They shall, in order of
their seniority or in such other order as may be designated by the Board of
Directors, the Executive Committee, the Chief Executive Officer or the
President, exercise the powers of the Chief Executive Officer during the absence
or inability to act of the Chief Executive Officer and the President.
Section 6. CHIEF FINANCIAL OFFICER. A Chief Financial Officer or other
officer designated by the Board of Directors shall be the principal financial
officer of the corporation. He shall render to the Board of Directors, whenever
the Board may require, an account of the financial condition of the corporation,
and shall do and perform such other duties as from time to time may be assigned
to him by the Board of Directors, the Executive Committee, the Chief Executive
Officer or the President.
Section 7. CONTROLLER. A Controller or other officer designated by the
Board of Directors shall be the principal accounting officer of the corporation
and, subject to the direction of the Chief Financial Officer, he shall have
supervision over all the accounts and account books of the corporation. He shall
have such other powers and perform such other duties as from time to time may be
assigned to him by the Chief Financial Officer, and shall exercise the powers of
the Chief Financial Officer during his absence or inability to act.
Section 8. TREASURER. The Treasurer shall have custody of the funds and
securities of the corporation which come into his hands. When necessary or
proper, he may endorse on behalf of the corporation for collection, checks,
notes, and other
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instruments and obligations and shall deposit the same to the credit of the
corporation in such bank or banks or depositories as the Board of Directors or
the Executive Committee shall designate; whenever required by the Board of
Directors or the Executive Committee, he shall render a statement of his cash
account; he shall keep, or cause to be kept, books of account, in which shall be
entered and kept full and accurate accounts of all monies received and paid out
on account of the corporation; he shall perform all acts incident to the
position of Treasurer, subject to the control of the Board of Directors, the
Executive Committee, the Chief Executive Officer, the President and the Chief
Financial Officer; he shall give bond for the faithful discharge of his duties,
if, as, and when the Board of Directors or the Executive Committee may require.
He shall perform such other duties as from time to time may be assigned to him
by the Board of Directors, the Executive Committee, the Chief Executive Officer,
the President or the Chief Financial Officer.
Section 9. ASSISTANT TREASURER. Each Assistant Treasurer shall have
such powers and perform such duties as may be delegated to him, and the
Assistant Treasurers shall, in the order of their seniority, or in such other
order as may be designated by the Board of Directors, the Executive Committee,
the Chief Executive Officer, the President or the Chief Financial Officer,
exercise the powers of the Treasurer during his absence or inability to act.
Section 10. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
stockholders and of the Executive Committee, in books provided for that purpose;
he shall attend to the giving and serving of all notices of the corporation; and
he shall have charge of the certificate books, transfer books and records of
stockholders and such other books and records as the Board of Directors or
Executive Committee may direct, all of which shall at all reasonable times be
open to the inspection of any director upon application during the usual
business hours.
He shall keep at the office of the corporation, or at the office of the
transfer agent or registrar of the corporation's capital stock, a record
containing the names, alphabetically arranged, of all persons who are
stockholders of the corporation, showing their places of residence, the number
of shares held by them, respectively, the time when they respectively became the
owners thereof, and the amount paid thereon, and such record shall be open for
inspection as prescribed by Section 220 of the General Corporate Law of the
State of Delaware. He shall in general perform all the duties incident to the
office of Secretary, subject to the control of the Board of Directors, the
Executive Committee, the Chairman of the Board of Directors, the Chief Executive
Officer and the President.
Section 11. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
such powers and perform such duties as may be delegated to him, and the
Assistant Secretaries shall, in the order of their seniority, or in such other
order as may be designated by the Board of Directors, the Executive Committee,
the Chairman of the
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Board of Directors, the Chief Executive Officer or the President, exercise the
powers of the Secretary during his absence or inability to act.
Section 12. VOTING UPON STOCKS. Unless otherwise ordered by the Board
of Directors or by the Executive Committee, the Chief Executive Officer of the
corporation, or one designated in a proxy executed by him, and in the absence of
either, the President, or a person designated in a proxy executed by him, and in
the absence of all such, the Executive Vice Presidents, Senior Vice Presidents
or the Vice Presidents of the corporation, in the order of their seniority,
shall have full power and authority on behalf of the corporation to attend, and
to act, and to vote at meetings of stockholders of any corporation in which this
corporation may hold stock, and each such officer of the corporation shall have
power to sign a proxy deputizing others to vote the same; and all such who shall
be so authorized to vote shall possess and may exercise any and all rights and
powers incident to the ownership of such stock and which, as the owner thereof,
the corporation might have possessed and exercised, if present.
The Board of Directors or the Executive Committee may, by resolution
from time to time, confer like powers on any other person or persons which shall
supersede the powers of those designated in the foregoing paragraph.
Section 13. EXECUTION OF CHECKS, ETC. All checks, notes, drafts or
other instruments for the payment of money shall be signed on behalf of this
corporation by such person or persons and in such manner as the Board of
Directors or Executive Committee may prescribe by resolution from time to time.
ARTICLE V
STOCK; RECORD DATE
Section 1. CERTIFICATES FOR STOCK. The certificates for shares of the
stock of the corporation shall be in such form as shall be proper or approved by
the Board of Directors. Each certificate shall state (i) that the corporation is
formed under the laws of the State of Delaware, (ii) the name of the person or
persons to whom issued, (iii) the number and class of shares and the designation
of the series, if any, which such certificate represents and (iv) the par value,
if any, of each share represented by such certificate. Each certificate shall be
signed by the Chairman of the Board of Directors, the President, an Executive
Vice President or a Vice President, and also by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary and sealed with the
corporation's seal; provided, however, that if such certificates are signed by a
transfer agent or transfer clerk and by a registrar the signature of the
Chairman of the Board of Directors, the President, an Executive Vice President,
Vice President, Treasurer, Assistant Treasurer, Secretary and Assistant
Secretary and the seal of the corporation upon such certificates may be
facsimiles, engraved or printed.
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Section 2. TRANSFER OF SHARES. Shares of the stock of the corporation
may be transferred on the record of stockholders of the corporation by the
holder thereof in person or by his duly authorized attorney upon surrender of a
certificate therefor properly endorsed.
Section 3. AUTHORITY FOR ADDITIONAL RULES REGARDING TRANSFER. The Board
of Directors and the Executive Committee shall have power and authority to make
all such rules and regulations as respectively they may deem expedient
concerning the issue, transfer and registration of such certificates for shares
of the stock of the corporation as well as for the issuance of new certificates
in lieu of those which may be lost or destroyed, and may require of any
stockholder requesting replacement of lost or destroyed certificates, bond in
such amount and in such form as they may deem expedient to indemnify the
corporation, and/or the transfer agents, and/or the registrars of its stock
against any claims arising in connection therewith.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors or
Executive Committee may appoint one or more transfer agents and one or more
registrars of transfer and may require all stock certificates to be
countersigned by such transfer agent and registered by such registrar of
transfers. One person or organization may serve as both transfer agent and
registrar.
Section 5. RECORD DATE. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors shall fix in advance a date
as the record date for any such determination of stockholders. Such date shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
Section 6. LIST OF STOCKHOLDERS AS OF RECORD DATE. The Secretary of the
corporation or the transfer agent of its stock shall make and certify a list of
the stockholders as of the record date and number of shares of each class of
stock of record in the name of each stockholder and such list shall be present
at every meeting of stockholders. If the right to vote at any meeting is
challenged, the inspectors of elections, or person presiding thereat, shall
require such list of stockholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be stockholders entitled to vote thereat, may vote at such meeting.
Section 7. DIVIDENDS. Dividends may be declared and paid out of the
surplus of the corporation as often and at such times and to such extent as the
Board of Directors may determine, consistent with the provisions of the
certificate of incorporation of the corporation.
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ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a suitable seal containing the
name of the corporation and of the state under the laws of which the corporation
was incorporated; and the Secretary shall have the custody thereof.
ARTICLE VII
AMENDMENTS
Section 1. These by-laws or any of them, may be altered, amended or
repealed, or new by-laws may be made by the stockholders entitled to vote
thereon at any annual or special meeting thereof or by the Board of Directors.
12
CVS CORPORATION
---------------
Deferred Compensation Plan
--------------------------
(as amended April 29, 1998)
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<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ARTICLE I
INTRODUCTION
1.01 Name of Plan...........................................................................1
1.02 Purpose of Plan........................................................................1
1.03 "Top Hat" Pension Benefit Plan.........................................................1
1.04 Funding................................................................................1
1.05 Effective Date.........................................................................1
1.06 Administration.........................................................................1
1.07 Number and Gender......................................................................1
1.08 Headings...............................................................................2
ARTICLE II
DEFINITIONS
2.01 Account................................................................................3
2.02 Annual Cash Incentive Compensation.....................................................3
2.03 Annual Cash Incentive Deferral.........................................................3
2.04 Base Salary............................................................................3
2.05 Base Salary Deferral...................................................................3
2.06 Beneficiary............................................................................3
2.07 Board..................................................................................3
2.08 Change in Control......................................................................4
2.09 Code...................................................................................5
2.10 Company................................................................................5
2.11 Company Contribution...................................................................5
2.12 Compensation Committee.................................................................5
2.13 CVS Corporation Future Fund............................................................5
2.14 Deferred Compensation Election.........................................................5
2.15 Effective Date.........................................................................5
2.16 Employee...............................................................................5
2.17 ERISA..................................................................................5
2.18 401(k) Plan............................................................................5
2.19 Melville Deferred Compensation Plan....................................................5
2.20 Participant............................................................................6
2.21 Plan...................................................................................6
2.22 Plan Committee.........................................................................6
2.23 Plan Year..............................................................................6
2.24 Retirement Date........................................................................6
2.25 Specific Future Year...................................................................6
2.26 Other Cash Incentive or Bonus Compensation.............................................6
2.27 Other Cash Incentive or Bonus Deferral.................................................6
</TABLE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Eligibility............................................................................7
3.02 Commencement of Participation..........................................................7
3.03 Cessation of Active Participation......................................................7
ARTICLE IV
DEFERRALS & COMPANY CONTRIBUTIONS
4.01 Deferral Amounts.......................................................................8
4.02 Effective Date of Deferred Compensation Elections......................................8
4.03 Modification or Revocation of Election by Participant..................................8
4.04 Company Contributions..................................................................9
4.05 Deferral and Contribution Timing......................................................10
4.06 Balances Transferred from the Melville Deferred Compensation Plan.....................10
ARTICLE V
ACCOUNTS
5.01 Establishment of Bookkeeping Accounts.................................................11
5.02 Subaccounts...........................................................................11
5.03 Hypothetical Nature of Accounts.......................................................11
5.04 Vesting...............................................................................11
5.05 Deferral Crediting Options............................................................11
5.06 Hypothetical Gains or Losses..........................................................12
ARTICLE VI
DISTRIBUTION OF ACCOUNT
6.01 Normal Distributions..................................................................13
6.02 Form of Payment.......................................................................14
6.03 Disability Distributions..............................................................14
6.04 Distributions in the Event of Death...................................................14
6.05 Distributions for Termination Other Than Retirement, Death or Disability..............15
6.06 Account Valuation Upon a Distribution.................................................15
6.07 Designation of Beneficiary............................................................15
6.08 Unclaimed Benefits....................................................................15
6.09 Hardship Withdrawals..................................................................15
6.10 Other Withdrawals.....................................................................16
6.11 Balances Transferred from the Melville Deferred Compensation Plan.....................16
</TABLE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ARTICLE VII
ADMINISTRATION
7.01 Plan Committee........................................................................17
7.02 General Powers of Administration......................................................17
7.03 Costs of Administration...............................................................17
7.04 Indemnification of Plan Committee.....................................................17
ARTICLE VIII
CLAIMS PROCEDURE
8.01 Claims................................................................................18
8.02 Claim Decision........................................................................18
8.03 Request for Review....................................................................18
8.04 Review of Decision....................................................................19
ARTICLE IX
MISCELLANEOUS
9.01 Not Contract of Employment............................................................20
9.02 Non-Assignability of Benefits.........................................................20
9.03 Withholding...........................................................................20
9.04 Amendment and Termination.............................................................20
9.05 No Trust Created......................................................................21
9.06 Unsecured General Creditor Status of Employee.........................................21
9.07 Severability..........................................................................21
9.08 Governing Laws........................................................................21
9.09 Binding Effect........................................................................22
9.10 Entire Agreement......................................................................22
</TABLE>
<PAGE>
ARTICLE I
INTRODUCTION
1.01 Name of Plan.
CVS Corporation (the "Corporation") hereby adopts the CVS Deferred
Compensation Plan (the "Plan").
1.02 Purpose of Plan.
The purpose of the Plan is to provide certain eligible employees of the
Company the opportunity to defer elements of their compensation which might
not otherwise be deferrable under other Company plans, including the 401(k)
portion of CVS Corporation Future Fund (the "401(k)Plan"), and to receive
the benefit of additions to their deferral comparable to those obtainable
under the 401(k) Plan in the absence of certain restrictions and
limitations in the Internal Revenue Code. In addition, deferral accounts
under the Melville Deferred Compensation Plan will be merged into this
plan.
1.03 "Top Hat" Pension Benefit Plan.
The Plan is an "employee pension benefit plan" within the meaning of ERISA.
However, the Plan is unfunded and maintained for a select group of
management or highly compensated employees and, therefore, it is intended
that the Plan will be exempt from Parts 2, 3 and 4 of Title 1 of ERISA. The
Plan is not intended to qualify under Code section 401(a).
1.04 Funding.
The Plan is unfunded. All benefits will be paid from the general assets of
the Company.
1.05 Effective Date.
The Plan is effective as of January 1, 1997.
1.06 Administration.
The Plan shall be administered by the Plan Committee, as defined in Article
II.
1.07 Number and Gender.
Wherever appropriate herein, words used in the singular shall be considered
to include the plural and words used in the plural shall be considered to
include the singular. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender. The feminine gender, where
appearing in the Plan, shall be deemed to include the masculine gender.
1.08 Headings.
The headings of Articles and Sections herein are included solely for
convenience, and if there is any conflict between such headings and the
text of the Plan, the text shall control.
ARTICLE II
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DEFINITIONS
For purposes of the Plan, the following words and phrases shall have
the meanings set forth below, unless their context clearly requires a different
meaning:
2.01 Account means the bookkeeping account maintained by the Company on behalf
of each Participant pursuant to this Plan.
2.02 Annual Cash Incentive Compensation means the amount awarded to a
Participant in cash for a Plan Year under any annual incentive plan maintained
by the Company.
2.03 Annual Cash Incentive Deferral means the amount of a Participant's Annual
Cash Incentive Compensation which the Participants elect to have withheld on a
pretax basis from their Annual Cash Incentive Compensation and credited to their
Account pursuant to this Plan.
2.04 Base Salary means the base rate of cash compensation paid by the Company to
or for the benefit of a Participant for services rendered or labor performed
while a Participant, including base pay a Participant could have received in
cash in lieu of:
(a) deferrals pursuant to this Plan, and
(b) contributions made on the Participant's behalf to any qualified plan
maintained by the Company or to any cafeteria plan under Section 125 of the
Code maintained by the Company.
2.05 Base Salary Deferral means the amount of a Participant's Base Salary which
the Participants elect to have withheld on a pretax basis from Base Salary and
credited to their Account pursuant to this Plan.
2.06 Beneficiary means the person or persons designated by the Participant in
accordance with the provisions of this Plan.
2.07 Board means the Board of Directors of CVS Corporation.
2.08 Change in Control means the happening of any of the following events:
(a) any person (other than the Corporation, any trustee or other fiduciary
holding securities under any employee benefit plan of the Corporation, or
any company owned, directly or indirectly, by the stockholders of the
Corporation immediately prior to the occurrence with respect to which the
evaluation is being made in substantially the same proportions as their
ownership of the common stock of the Corporation) becomes the Beneficial
Owner (except that a Person shall be deemed to be the Beneficial Owner of
all shares that any such person has the right to acquire pursuant to any
agreement or arrangement or upon exercise of conversion rights, warrants or
options or otherwise, without regard to the sixty day period referred to in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Corporation or any Significant Subsidiary (as defined below),
representing 25% or more of the combined voting power of the Corporation's
or such subsidiary's then outstanding securities;
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(b) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Corporation to effect a transaction described in clause (i),
(iii), or (iv) of this paragraph) whose election by the Board or nomination
for election by the Corporation's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved but excluding for this
purpose any such new director whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of an individual, corporation, partnership, group, associate
or other entity or Person other than the Board, cease for any reason to
constitute at least a majority of the Board;
(c) the consummation of a merger or consolidation of the Corporation or any
subsidiary owning directly or indirectly all or substantially all of the
consolidated assets of the Corporation (a "Significant Subsidiary") with
any other entity, other than a merger or consolidation which would result
in the voting securities of the Corporation or a Significant Subsidiary
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or resulting entity) more than 50% of the combined voting power
of the surviving or resulting entity outstanding immediately after such
merger or consolidation;
(d) the stockholders of the Corporation approve a plan or agreement for the
sale or disposition of all or substantially all of the consolidated assets
of the Corporation (other than such a sale or disposition immediately after
which such assets will be owned directly or indirectly by the stockholders
of the Corporation in substantially the same proportions as their ownership
of the common stock of the Corporation immediately prior to such sale or
disposition) in which case the Board shall determine the effective date of
the Change in Control resulting therefrom; or
(e) any other event occurs which the Board determines, in its discretion,
would materially alter the structure of the Corporation or its ownership.
For purposes of this definition:
(1) The term "Beneficial Owner" shall have the meaning
ascribed to such term in Rule 13d-3 under the Exchange Act
(including any successor to such Rule).
(2) The term "Exchange Act" means the Securities Exchange Act
of 1934, as amended from time to time, or any successor act
thereto.
(3) The term "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Exchange Act and used in
Sections 13(d) and 14(d) thereof,
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including "group" as defined in Section 13(d) thereof.
2.09 Code means the Internal Revenue Code of 1986, as amended.
2.10 Company means CVS Corporation and any successor thereof with respect to its
employees and any subsidiary or affiliated company authorized by the
Compensation Committee to participate in the plan with respect to their
employees.
2.11 Company Contribution means the amount, as determined by the Company on an
annual basis based on the provisions of this Plan, credited by the Company to
the Account of each Participant based on such Participant's Base Salary
Deferral.
2.12 Compensation Committee means the Compensation Committee of the Board of
Directors.
2.13 CVS Corporation Future Fund means the Profit Sharing, 401(k) and Employee
Stock Option Plans of CVS Corporation and affiliated Companies.
2.14 Deferred Compensation Election means the written election as prescribed by
the Plan Committee, regardless of how it may be titled. This election is made by
the Participant and constitutes the agreement entered into between the Company
and a Participant for participation in the Plan. The Participants elect the
terms of their deferral pursuant to the provisions of this Plan.
2.15 Effective Date means January 1, 1997.
2.16 Employee means any common-law employee of the Company.
2.17 ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
2.18 401(k) Plan means the 401(k) portion of CVS Corporation Future Fund.
2.19 Melville Deferred Compensation Plan means The Deferred Compensation Plan as
adopted by The Melville Corporation.
2.20 Participant means each Employee participating in the Plan pursuant to
Article III.
2.21 Plan means the CVS Deferred Compensation Plan, as amended from time to
time.
2.22 Plan Committee means the administrative committee approved by the
Compensation Committee of the Board of Directors to administer the Plan in
accordance with the provisions of this Plan.
2.23 Plan Year means the calendar year ending on December 31.
2.24 Retirement Date means the date the Participant is eligible for and retires
under CVS
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Corporation Future Fund, or any successor plan thereto, and is entitled to
receive benefits from said plan.
2.25 Specific Future Year means a calender year in the future voluntarily
elected by a Participant to begin distribution of Account(s) pursuant to this
Plan.
2.26 Other Cash Incentive or Bonus Compensation means the amount awarded to a
Participant in cash during any Plan Year other than awards under any annual
incentive plan maintained by the Company, including, but not limited to, hiring
bonuses and special recognition awards.
2.27 Other Cash Incentive or Bonus Deferral means the amount of a Participant's
Other Cash Incentive or Bonus Compensation which the Participant elects to have
withheld on a pretax basis from Other Cash Incentive or Bonus Compensation and
credited to their Account pursuant to this Plan.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Eligibility.
Employees who are eligible for participation in the Plan are:
(a) those that earn Base Salary equal to or greater than $100,000,
as adjusted from time to time by the Plan Committee, or
(b) certain key employees the Plan Committee may designate to
participate in the Plan at its discretion.
Employees must also be subject to the income tax laws of the United States
in order to be eligible for participation in the Plan.
The Plan Committee shall notify Employees of their selection as eligible
Participants. Subject to the provisions of Section 3.03 below, a
Participant shall remain eligible to continue participation in the Plan for
each Plan Year following his or her initial year of participation in the
Plan.
3.02 Commencement of Participation.
An Employee shall become a Participant effective as of the date the Plan
Committee grants eligibility and that Employee's first Deferred
Compensation Election becomes effective.
Participants in the Melville Deferred Compensation Plan will be
Participants in this Plan as existing account balances in the Melville
Deferred Compensation Plan are merged with this Plan.
3.03 Cessation of Active Participation.
Notwithstanding any provision herein to the contrary, an individual who has
become a Participant in the Plan shall cease to be a Participant hereunder
effective as of any date designated by the Plan Committee. Any such Plan
Committee action shall be communicated to such Participant prior to the
effective date of such action.
If a Participant's Base Salary falls below the minimum from Section 3.01(a)
above, the Participant will not be allowed to defer additional amounts into
the Plan until such time as his or her Base Salary meets the minimum
requirement. Existing amounts in the Participant's Account will be
maintained according the normal provisions of the Plan.
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ARTICLE IV
DEFERRALS & COMPANY CONTRIBUTIONS
4.01 Deferral Amounts.
Before the first day of each Plan Year (or the remaining portion thereof
for an Employee who first becomes eligible to participate in the Plan other
than on the first day of a Plan Year), a Participant may file with the Plan
Committee a Deferred Compensation Election. The Participant may defer up to
50% of Base Salary or up to 100% of Annual Cash Incentive Compensation or
up to 100% of Other Cash Incentive or Bonus Compensation.
4.02 Effective Date of Deferred Compensation Elections.
A Participant's Deferred Compensation Election shall be effective as of the
first day of the Plan Year to which it relates. If an employee becomes
eligible to participate after December 31, he or she may elect to defer
Base Salary and/or Annual Cash Incentive for that year by filing a Deferred
Compensation Election with the Plan Committee prior to the close of
business on the thirtieth day following the date he or she becomes eligible
to participate in the Plan, provided, however, that Annual Cash Incentive
Compensation may be deferred only if the amount earned for that year has
not already been determined by appropriate action of the Compensation
Committee.
If the Participant enters the Plan other than on the first day of a Plan
Year, the Deferred Compensation Election shall be effective as of the first
day of the first payroll period after the date the Participant files said
Election with the Plan Committee.
All eligible Employees must complete the Deferred Compensation Election
form, even if electing not to participate. In the event a Participant fails
to complete a Deferred Compensation Election on or before the date the
Participant commences participation in the Plan or the first day of any
Plan Year, the Participant shall be deemed to have elected not to make a
deferral for such Plan Year (or remaining portion thereof if the
Participant enters the Plan other than on the first day of a Plan Year).
4.03 Modification or Revocation of Election by Participant.
A Participant's Deferred Compensation Election is irrevocable. However, a
Participant may discontinue a Base Salary Deferral at any time by filing a
revised Deferred Compensation Election which must be approved by the Plan
Committee, and subject to proof of hardship or other such limitations and
restrictions as the Plan Committee may prescribe in its sole discretion. If
approved by the Plan Committee, revocation shall take effect as of the
first day of the next payroll period after its filing. If Participants
discontinue a Base Salary Deferral election during a Plan Year, they will
not be permitted to elect Base Salary Deferral again until the next Plan
Year.
A Participant may only discontinue or reduce deferral of an Annual Cash
Incentive Compensation election or an Other Cash Incentive or Bonus
Compensation Election by a
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showing of a severe financial hardship in accordance with the provisions of
this Plan.
Under no circumstances may a Participant's Deferred Compensation Election
be made, modified or revoked retroactively.
4.04 Company Contributions.
There are three types of Company Contributions in the Plan.
(a) Restoration of Lost 401(k) Match. The Participant must defer
Base Salary to be eligible for this contribution in any amount. The
purpose of this contribution is to restore any 401(k) Plan match
lost as a result of participation in this Plan.
The contribution for this Section is equal to the matching
percentage the Participant is eligible for in the 401(k) Plan times
the percentage the Participant is deferring into the 401(k) Plan, up
to a maximum of four (4) percent, times matchable compensation.
Matchable compensation for purposes of this Section 4.04(a) is equal
to the lesser of Base Salary or the Qualified Compensation Limit (as
defined in Section 401(a)(17) of the Internal Revenue Code) minus
the result of: Base Salary for the Plan Year minus the Base Salary
deferred in the Plan Year. Matchable compensation for purposes of
this Section 4.04(a) may not be less than zero.
(b) Deferral Plan Match. The Participant must defer Base Salary to
be eligible for this contribution. The purpose of this contribution
is to restore any 401(k) match lost as a result of the Qualified
Compensation Limit.
The contribution for this Section is equal to the matching
percentage the Participant is eligible for in the 401(k) Plan times
the percentage of Base Salary the Participant is deferring into this
Plan, up to a maximum of four (4) percent, times matchable
compensation. Matchable compensation for purposes of this Section
4.04(b) is equal (1) minus (2) as defined below.
(1) The greater of the Participant's Base
Salary or the Qualified Compensation Limit.
(2) The Qualified Compensation Limit.
(c) Restoration of CVS Corporation Future Fund Profit Sharing
Contributions. At the sole discretion of the Plan Committee,
contributions may be made to this Plan to restore any contributions
that are limited in the CVS Corporation Future Fund Profit Sharing
Plan as a result of IRS limitations, qualified plan discrimination
limitations, participation in the 401(k) Plan or this Plan.
4.05 Deferral and Contribution Timing.
Base Salary deferrals will be credited to the Account of each Participant
as of the date of
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the pay check from which the deferral was withheld. A Participant whose
employment terminates during a pay period will cease deferral withholding
effective as of the first day of the following payroll period.
Annual Cash Incentive Deferrals and/or Other Cash Incentive or Bonus
Deferrals will be credited to the Account of each Participant as of the day
of which such Annual Cash Incentive Compensation and/or Other Cash
Incentive or Bonus Compensation otherwise would have been paid to the
Participant in cash, provided that the Participant is an Employee on such
date.
Company Contributions for the Restoration of Lost 401(k) Match pursuant to
Section 4.04(a) above and Deferral Plan Match pursuant to Section 4.04(b)
above will be credited to the Participant's Account on a monthly basis.
Company Contributions for Restoration of CVS Corporation Future Fund Profit
Sharing Contributions pursuant to Section 4.04(c) above will be credited to
the Participant's Account as of the date the profit sharing Contribution is
contributed to the CVS Corporation Future Fund.
4.06 Balances Transferred from the Melville Deferred Compensation Plan.
Each Participant in the Melville Deferred Compensation Plan will be
required to make a Deferred Compensation Election(s) on a special form, as
determined by the Plan Committee, that relates to that Participant's
balances in the Melville Deferred Compensation Plan. Such Deferred
Compensation election will be effective as of the merger of the Melville
Deferred Compensation Plan into this Plan.
The balances from the Melville Deferred Compensation Plan will be credited
to the Participant's Account as of the date the Melville Deferred
Compensation Plan is merged into the Plan, subject to the provisions in
Article 6.11.
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ARTICLE V
ACCOUNTS
5.01 Establishment of Bookkeeping Accounts.
A separate bookkeeping account shall be maintained for each Participant.
Such account shall be credited with the deferrals made by the Participant
pursuant to this Plan and credited (or charged, as the case may be) with
the hypothetical investment results determined pursuant to this Article of
the Plan.
5.02 Subaccounts.
Within each Participant's bookkeeping account, separate subaccounts shall
be maintained to the extent necessary for the administration of the Plan.
Generally, a subaccount will be set up for each year and for each Deferred
Compensation Election the Participant makes.
5.03 Hypothetical Nature of Accounts.
The accounts established under this Article shall be hypothetical in nature
and shall be maintained for bookkeeping purposes only so that hypothetical
gains or losses on the deferrals made to the Plan can be credited (or
charged, as the case may be).
Neither the Plan nor any of the accounts, or subaccounts, established
hereunder shall hold any actual funds or assets. The right of any person to
receive one or more payments under the Plan shall be an unsecured claim
against the general assets of the Company. Any liability of the Company to
any Participant, former Participant, or Beneficiary with respect to a right
to payment shall be based solely upon contractual obligations created by
the Plan. Neither the Company, the Board, nor any other person shall be
deemed to be a trustee of any amounts to be paid under the Plan. Nothing
contained in the Plan, and no action taken pursuant to its provisions,
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and a Participant or any other Person.
5.04 Vesting.
Participants shall be 100% vested in their Account, including Company
Contributions, at all times.
5.05 Deferral Crediting Options.
Deferral Crediting Options are similar to investment choices in a qualified
401(k) plan and the stock units under the Partnership Equity Plan, except
that they are hypothetical in nature and no funds are actually held in the
plan. Deferral Crediting Options determine the hypothetical gain or loss to
be reflected in the Participant Accounts.
The Deferral Crediting Options offered to Participants are determined by
the Plan Committee at its sole discretion. The Plan Committee specifically
retains the right to change the Deferral Crediting Options at any time, in
its sole discretion. The Deferral Crediting Options that will be offered
initially will be the same as the investment choices
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offered in CVS Corporation Future Fund, except for CVS Preference Stock,
and will function similarly to said investment choices; provided, however,
with respect to the amounts transferred from the Melville Deferred
Compensation Plan an additional investment choice shall be Corporate Common
Stock under the Partnership Equity Plan.
The Deferred Compensation Election will provide for the election of the
allocation of deferral amounts into the Deferral Crediting Options at the
time of election. Participants may change the allocation of deferrals
credited to their account once per calendar month beginning with February
in the Plan Year for which the most recent annual election process was
held. Participants may reallocate their existing Account, or subaccount(s),
among the Deferral Crediting Options once per calendar month beginning with
the second calendar month that deferrals are first placed in their account.
Any amounts added to or subtracted from a Participant's Account on any
given day will be converted to hypothetical share equivalents
("Hypothetical Shares") based on the daily closing price on said date
("Share Price") for any given Deferral Crediting Option. For example, a
deferral credited to a Participant's Account on January 3 will use the
daily closing price for January 3 for each Deferral Crediting Option
affected. As a result, the accounts will always be at least one day behind.
Hypothetical Shares will be carried to three (3) decimal places or to a
thousandth of a share. Share Prices shall be carried in U. S. Dollars and
to the cent or hundredth of a dollar. Initially, the Share Price will be
the daily closing price for the similar investment choice in CVS
Corporation Future Fund on which any given Deferral Crediting Option is
based.
5.06 Hypothetical Gains or Losses.
Any hypothetical dividends, capital gains and any other income or share
activity will be reflected in the Deferral Crediting Options. The timing of
these will be the same as for the funds on which each Deferral Crediting
Option is based.
The gain or loss on Participant Accounts will be calculated each business
day. The Share Price shall determine each Deferral Crediting Option's
hypothetical value, based on the number of shares within the Account for
any given Deferral Crediting Option. Account balances that are given to
Participants on a given day will be based on the closing price of the
previous business day.
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ARTICLE VI
DISTRIBUTION OF ACCOUNT
6.01 Normal Distributions.
A Participant has two choices for Normal Distributions. These are
Retirement and Specific Future Year. One of these must be chosen at the
time of the Deferred Compensation Election. Participants may chose
different options with each Deferred Compensation Election.
(a) Retirement Participants can elect to receive distribution of
their deferral account beginning the first business day of January
following, or coincident with, their Retirement Date.
(1) Interim Distribution Participants can elect to receive an
Interim Distribution from their Account. This option is only
available if the Retirement option is selected by the
Participant. This Interim Distribution can be equal to 50% or
100% of the original annual deferral amount, or the Account
balance if less, for any given Deferred Compensation Election.
The Interim Distribution will be paid as of the first business
day in January of the "Interim Distribution Year" selected by
the Participant. The "Interim Distribution Year" can be as early
as the third year the Deferred Compensation Election is in
effect or as late as the tenth year the Deferred Compensation
Election is in effect. If retirement occurs before the Interim
Distribution is made, the Participant will only receive the
retirement benefits.
(b) Specific Future Year Participants can elect to receive
distribution of their deferral account starting in a future year of
their choice. The Specific Future Year must be at least five (5)
Plan Years after the Deferred Compensation Election has been in
effect, unless the Participant has attained age 55 or older in the
year in which the Deferred Compensation Election is effective, then
it must be a minimum period of one plan year. The Melville Deferred
Compensation Plan provides for a minimum of three (3) years, and
that provision will be maintained for accounts merged into this
Plan. The Specific Future Year may not be later than the Plan Year
in which the Participant attains age 71.
Participants may change their elections under Section 6.01 or Section 6.02
at any time by duly completing, executing, and filing with the Plan
Committee a new election on an appropriate form designated by the Plan
Committee; provided however, that for any such change of election to be
effective, a full calendar year must pass between the calendar year during
which the Participant duly makes the change of election and the calendar
year during which the Participant duly makes the change of election and the
calendar year during which any portion of the Participant's Deferral
Account is first to become payable after taking the change of election into
account.
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6.02 Form of Payment.
(a) Normal Distributions will be made in annual or quarterly installments
for up to, and including, fifteen (15) years. Annual payments will be as of
the first business day of January, payable within twenty (20) days. The
initial installment of a quarterly payment stream will begin as of the
first business day in January following the Participant's Retirement Date
or of the specified year, payable within twenty (20) days. Subsequent
quarterly payments will be as of the first business day of each quarter,
payable within twenty (20) days.
Each annual or quarterly installment will be equal to a fraction of the
Account balance as of the date the installment is paid. The numerator of
the fraction being "1" and the denominator being the number of payments
remaining in the payment schedule. For example, the respective fractions
for a five (5) year annual installment schedule are 1/5 for the first
installment; 1/4 for the second; 1/3 for the third; 1/2 for the fourth; and
1/1 (or the balance) for the fifth and final installment.
(b) Normal Distributions will occur when and how a Participant elects to
receive payment at the time of his or her Deferral Election.
(c) In the calendar year prior to the year in which Normal Distribution of
a Participant's Account is scheduled to begin (but no less than one year
prior to the distribution date in any event), a Participant may request a
change in form of payment which may be approved or disapproved by the Plan
Committee in its sole discretion.
6.03 Disability Distributions.
If a Participant becomes totally and permanently disabled while actively
employed at the Company under the definition of Disability Retirement in
CVS Corporation Future Fund, the Participant will receive the balance of
their Account in five (5) annual installments with the first payment to be
made within ninety (90) days following the date of disability. Subsequent
annual payments will be paid as of the first business day in January.
Participants may petition the Plan Committee for a shorter distribution
schedule based upon hardship, which may be granted at the sole discretion
of the Plan Committee.
6.04 Distributions in the Event of Death.
In the event of a Participant's death while actively employed by the
Company, the Participant's Beneficiary will receive the balance of the
Account paid out in five (5) annual installments with the first payment to
be made within ninety (90) days following the date of death. Subsequent
annual payments will be paid as of the first business day in January. The
Participant's Beneficiary may petition the Plan Committee for a shorter
distribution schedule based upon hardship, which may be granted at the sole
discretion of the Plan Committee.
6.05 Distributions for Termination Other Than Retirement, Death or Disability.
In the event a Participant terminates from the Company for any reason other
than
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retirement, death, or disability, they will receive their Account in a lump
sum payment within ninety (90) days of the date of termination of
employment.
6.06 Account Valuation Upon a Distribution.
Before a distribution pursuant to this Article, the balance of a
Participant's Account shall be determined as of the business day of payment
based on the Share Price in effect for that business day.
6.07 Designation of Beneficiary.
Each Participant shall have the right to designate a beneficiary to receive
payment of their Account in the event of their death. A beneficiary
designation shall be made by executing and filing the beneficiary
designation form prescribed by the Plan Committee. Any such designation may
be changed at any time by execution of a new designation in accordance with
this Section.
If no such designation is on file with the Plan Committee at the time of
the death of the Participant, or such designation is not effective for any
reason as determined by the Plan Committee, then the beneficiary to receive
such benefit shall be the Participant's surviving spouse, if any, or if
none, the Participant's estate.
6.08 Unclaimed Benefits.
If the Plan Committee is unable to locate a Participant or Beneficiary to
whom a benefit is payable, such benefit may be forfeited to the Company
upon the Plan Committee's determination. Notwithstanding the foregoing, if
subsequent to any such forfeiture the Participant or Beneficiary to whom
such benefit is payable makes a valid claim for such benefit, such
forfeited benefit shall be restored to the Plan and paid by the Company,
with interim interest credited as if the account were maintained in the
plan.
6.09 Hardship Withdrawals.
A Participant may apply in writing to the Plan Committee for, and the Plan
Committee may grant, a hardship withdrawal of all or any part of a
Participant's Account if the Plan Committee, in its sole discretion,
determines that the Participant has incurred a severe financial hardship.
The Plan Committee shall determine whether an event qualifies as a hardship
within this Section, in its sole and absolute discretion. The amount that
may be withdrawn shall be limited to the amount reasonably necessary to
relieve the hardship or financial emergency upon which the request is
based, plus the federal and state taxes due on the withdrawal, as
determined by the Plan Committee. The Plan Committee may require a
Participant who requests a hardship withdrawal to submit such evidence as
the Plan Committee, in its sole discretion, deems necessary or appropriate
to substantiate the circumstances upon which the request is based.
Notwithstanding anything in the Plan to the contrary, if a Participant:
(1) receives a withdrawal of deferred cash contributions on account of
hardship from
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any plan which is maintained by the Company and which meets the
requirements of Section 401(k) of the Internal Revenue Code (or
successor thereto) and
(2) is precluded from making contributions to such 401(k) plan for at least
12 months after receipt of the hardship withdrawal, no amounts shall be
deferred under this Plan under any Deferred Compensation Elections with
respect to Base Salary or Annual Cash Incentive Compensation until such
time as the Participant is again permitted to contribute to such 401(k)
plan. Any Base Salary or Annual Cash Incentive Compensation payment
which would have been deferred pursuant to a Deferred Compensation
Election but for the application of this section shall be paid to the
Participant as if he or she had not entered into the Deferred
Compensation Election.
6.10 Other Withdrawals.
At any time, a Participant may request that ninety percent (90%) of all, or
a designated portion of, their account balance be paid to them. The Plan
Committee in its sole discretion may approve or disapprove such a request.
If it approves the request and a Participant receives a payment under this
Section, the Participant shall:
(a) permanently forfeit the remaining ten percent (10%) of all, or a
designated portion of, the account balance paid to them; and
(b) lose the right to defer into the Plan for twelve full calendar
months following the date which a distribution is made pursuant to
this Section.
6.11 Balances Transferred from the Melville Deferred Compensation Plan.
Balances transferred to this Plan shall be subject to the provisions of
this Article, with the following exceptions.
(a) The Interim Distribution option will not be available.
(b) A Specific Future Year must be at least three (3) Plan Years
after the Deferred Compensation Election rather than at least five
(5) Plan Years after the Deferred Compensation Election.
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ARTICLE VII
ADMINISTRATION
7.01 Plan Committee.
The Plan shall be administered by a Plan Committee appointed by the
Compensation Committee. The Plan Committee shall be responsible for the
general operation and administration of the Plan and for carrying out the
provisions thereof. The Plan Committee may delegate to others certain
aspects of the management and operations of the Plan including the
employment of advisors and the delegation of ministerial duties to
qualified individuals, provided that such delegation is in writing. The
Plan Committee shall be a "named fiduciary" as that term is defined in
Section 402(a)(2) of ERISA.
7.02 General Powers of Administration.
The Plan Committee shall have all powers necessary or appropriate to enable
it to carry out its administrative duties. Not in limitation, but in
application of the foregoing, the Plan Committee shall have the duty and
power to interpret the Plan and determine all questions that may arise
hereunder as to the status and rights of Employees, Participants,
Beneficiaries, and any other person. The Plan Committee may exercise the
powers hereby granted in its sole and absolute discretion. No member of the
Plan Committee shall be personally liable for any actions taken by the Plan
Committee unless the member's action involves willful misconduct.
7.03 Costs of Administration.
The costs of administering the Plan shall be borne by the Company unless
and until the Participant receives written notice of the imposition of such
administrative costs, with such costs to begin with the next Plan Year and
none may be assessed retroactively for prior Plan Years. Such costs shall
be charged against the Participant's Account and shall be uniform or
proportional for all Plan Participants. Such costs shall not exceed the
standard rates for similarly designed nonqualified plans under
administration by high quality third party administrators at the time such
costs are initially imposed and thereafter.
7.04 Indemnification of Plan Committee.
The Company shall indemnify the members of the Plan Committee against any
and all claims, losses, damages, expenses, including attorney's fees,
incurred by them, and any liability, including any amounts paid in
settlement with their approval, arising from their action or failure to
act, except when the same is judicially determined to be attributable to
their gross negligence or willful misconduct.
16
<PAGE>
ARTICLE VIII
CLAIMS PROCEDURE
8.01 Claims.
A person who believes that they are being denied a benefit to which they
are entitled to under the Plan (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the Plan Committee,
setting forth their claim. The request must be addressed to the Plan
Committee at the Company's then principal place of business.
8.02 Claim Decision.
Upon receipt of a claim, the Plan Committee shall advise the Claimant that
a reply will be forthcoming within ninety (90) days and shall, in fact,
deliver such reply within such period. The Plan Committee may, however,
extend the reply period for an additional ninety (90) days for reasonable
cause.
If the claim is denied in whole or in part, the Plan Committee shall adopt
a written opinion, using language calculated to be understood by the
Claimant, setting forth all of the following.
(a) The specific reason or reasons for such denial.
(b) The specific reference to pertinent provisions of the Plan on
which such denial is based.
(c) A description of any additional material or information
necessary for the Claimant to perfect their claim and an explanation
why such material or such information is necessary.
(d) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review.
(e) The time limits for requesting a review under this Section.
8.03 Request for Review.
With sixty (60) days after the receipt by the Claimant of the written
opinion described above, the Claimant may request in writing that the
Company review the determination of the Plan Committee. Such request must
be addressed to the Secretary of the Company, at its then principal place
of business. The Claimant or their duly authorized representative may, but
need not, review the pertinent documents and submit issues and comments in
writing for consideration by the Company. If the Claimant does not request
a review of the Plan Committee's determination by the Company within such
sixty (60) day period, he shall be barred and estopped from challenging the
Plan Committee's determination.
8.04 Review of Decision.
Within sixty (60) days after the Secretary's receipt of a request for
review, he will review the Plan Committee's determination. After
considering all materials presented by the Claimant, the Secretary will
render a written opinion, written in a manner calculated to be understood
by the Claimant, setting forth the specific reasons for the decision and
containing specific references to the pertinent provisions of this Plan on
which the decision is based. If special circumstances require that the
sixty (60) day time period be
17
<PAGE>
extended, the Secretary will so notify the Claimant and will render the
decision as soon as possible, but no later than one hundred twenty (120)
days after receipt of the request for review.
18
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.01 Not Contract of Employment.
The adoption and maintenance of the Plan shall not be deemed to be a
contract between the Company and any person and shall not be consideration
for the employment of any person. Nothing herein contained shall be deemed
to give any person the right to be retained in the employ of the Company or
to restrict the right of the Company to discharge any person at any time
nor shall the Plan be deemed to give the Company the right to require any
person to remain in the employ of the Company or to restrict any person's
right to terminate their employment at any time.
9.02 Non-Assignability of Benefits.
No Participant, Beneficiary or distributee of benefits under the Plan shall
have any power or right to transfer, assign, anticipate, hypothecate or
otherwise encumber any part or all of the amounts payable hereunder, which
are expressly declared to be unassignable and non-transferable. Any such
attempted assignment or transfer shall be void. No amount payable hereunder
shall, prior to actual payment thereof, be subject to seizure by any
creditor of any such Participant, Beneficiary or other distributee for the
payment of any debt judgment or other obligation, by a proceeding at law or
in equity, nor transferable by operation of law in the event of the
bankruptcy, insolvency or death of such Participant, Beneficiary or other
distributee hereunder.
9.03 Withholding.
All deferrals and payments provided for hereunder shall be subject to
applicable withholding and other deductions as shall be required of the
Company under any applicable local, state or federal law.
9.04 Amendment and Termination.
The Compensation Committee may from time to time, in its discretion, amend,
in whole or in part, any or all of the provisions of the Plan; provided,
however, that no amendment may be made that would impair the rights of a
Participant with respect to amounts already allocated to their Account. The
Compensation Committee may terminate the Plan at any time. In the event
that the Plan is terminated, the balance in a Participant's Account shall
be paid to such Participant or Beneficiary in a single cash lump sum, in
full satisfaction of all such Participant's or Beneficiary's benefits
hereunder. Any such amendment to or termination of the Plan shall be in
writing and signed by a member of the Compensation Committee.
9.05 No Trust Created.
Nothing contained in this Plan, and no action taken pursuant to its
provisions by the Company or any person, shall create, nor be construed to
create, a trust of any kind or a fiduciary relationship between the Company
and the Participant, Beneficiary, or any other person.
19
<PAGE>
9.06 Unsecured General Creditor Status of Employee.
The payments to the Participant, Beneficiary or any other distributee
hereunder shall be made from assets which shall continue, for all purposes,
to be a part of the general, unrestricted assets of the Company. No person
shall have nor acquire any interest in any such assets by virtue of the
provisions of this Plan. The Company's obligation hereunder shall be an
unfunded and unsecured promise to pay money in the future. To the extent
that the Participant, Beneficiary or other distributee acquires a right to
receive payments from the Company under the provisions hereof, such right
shall be no greater than the right of any unsecured general creditor of the
Company. No such person shall have nor require any legal or equitable
right, interest or claim in or to any property or assets of the Company.
In the event that, in its discretion, the Company purchases an insurance
policy, or policies, insuring the life of the Employee, or any other
property, to allow the Company to recover the cost of providing the
benefits, in whole, or in part, hereunder, neither the Participant,
Beneficiary nor other distributee shall have nor acquire any rights
whatsoever therein or in the proceeds therefrom. The Company shall be the
sole owner and beneficiary of any such policy or policies and, as such,
shall possess and, may exercise all incidents of ownership therein. No such
policy, policies or other property shall be held in any trust for a
Participant, Beneficiary or other distributee or held as collateral
security for any obligation of the Company hereunder. An Employee's
participation in the underwriting or other steps necessary to acquire such
policy or policies may be required by the Company and, if required, shall
not be a suggestion of any beneficial interest in such policy or policies
to a Participant.
9.07 Severability.
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining
provisions hereof; instead, each provision shall be fully severable and the
Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
9.08 Governing Laws.
All provisions of the Plan shall be construed in accordance with the laws
of Rhode Island, except to the extent preempted by federal law.
9.09 Binding Effect.
This Plan shall be binding on each Participant and their heirs and legal
representatives and on the Company and its successors and assigns.
9.10 Entire Agreement.
This document and any amendments contain all the terms and provisions of
the Plan and shall constitute the entire Plan, any other alleged terms or
provisions being of no effect.
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be properly executed on
the first day of April, 1997.
CVS CORPORATION
(Corporate Seal)
By: /s/ Charles C. Conaway
---------------------------------
Its: Executive Vice President and CFO
---------------------------------
Attested to:
By: /s/ Zenon P. Lankowsky
------------------------------
Its: Secretary
21
CVS CORPORATION
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Partnership Equity Program
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THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
<PAGE>
CVS CORPORATION
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Partnership Equity Program
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purpose ........................................................................................1
2. Status as Subplan Implemented Under the Omnibus Plan.............................................1
3. Eligibility......................................................................................1
4. Awards Under the Program.........................................................................1
5. Election to Participate and Invest in Program; Purchased Shares..................................2
6. Matching Restricted Stock Units; Certain Terms Applicable to Stock
and Matching Restricted Stock Units...........................................................4
7. Options..........................................................................................5
8. Forfeiture and Acceleration Upon Termination or Change in Control................................6
9. General Provisions...............................................................................8
10. Effective Date and Termination of Program........................................................9
</TABLE>
<PAGE>
CVS CORPORATION
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Partnership Equity Program
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1. Purpose. This Partnership Equity Program (the "Program") of CVS
Corporation (the "Company") is implemented under the Company's Omnibus Stock
Incentive Plan (the "Omnibus Plan") in order to promote a partnership and team
environment among the officer group through a mutual commitment to ownership of
a proprietary interest in the Company through investment in the Company's Common
Stock, $.01 par value per share ("Stock"), in the form of restricted stock
units, and acquisition of additional restricted stock units and options to
purchase Stock subject to a requirement of long-term service to the Company, and
otherwise to further the purposes of the Omnibus Plan.
2. Status as Subplan Implemented Under the Omnibus Plan. The Program
has been adopted by the Compensation Committee, pursuant to its authorization
under the Omnibus Plan, as a subplan implemented under the Omnibus Plan. All
shares of Stock issued or delivered in settlement of Purchased Shares (as
hereinafter defined) and Matching Restricted Stock Units (as hereinafter
defined) under the Program or issued upon exercise of options granted under the
Program shall be shares of Stock reserved and available under the Omnibus Plan.
All of the terms and conditions of the Omnibus Plan are hereby incorporated by
reference. Capitalized terms used in the Program but not defined herein shall
have the same meanings as defined in the Omnibus Plan. If any provision of the
Program is inconsistent with a provision of the Omnibus Plan, the provision of
the Omnibus Plan shall govern. The foregoing notwithstanding, if at any time the
authority of the Committee to grant awards under the Omnibus Plan is terminated,
the Committee may specify that the Program shall continue in effect under a plan
which is a successor to the Omnibus Plan and which authorizes the Committee to
grant awards of the type granted under the Program. In such case, Purchased
Shares and Matching Restricted Stock Units subsequently sold or awarded and
options subsequently granted shall be deemed to be awards under such successor
plan, and, with respect to such subsequent awards, all references in this
Program to the Omnibus Plan shall be deemed to refer instead to such successor
plan.
3. Eligibility. Those officers and other key employees of the Company
and its majority owned subsidiaries named on Exhibit A hereto (filed in
confidence with the Committee's minutes) shall be eligible to participate in the
Program for the initial 1997 offering. In addition, the Committee may, in its
discretion, specify additional officers and other key employees who may become
participants in the Program, together with the terms of participation to the
extent not already specified in the Program or the Omnibus Plan, by attaching
one or more additional exhibits hereto.
4. Awards Under the Program. An "Award" is a "Stock-Based Award," as
defined in Section 9 of the Omnibus Plan, which consists of the following three
components:
(i) "Purchased Shares" shall be either Stock Units (as
hereinafter defined) credited to a designated
<PAGE>
subaccount, or actual shares of Stock held in a designated subaccount,
under the Participant's Purchased Share Account established under
Section 5(b), representing the Participant's investment under the
Program.
(ii) "Matching Restricted Stock Units" shall be forfeitable
Stock Units credited to the Participant's Matching Account as a bonus.
(iii) An "Option" shall be an option to purchase Stock granted
to the Participant in connection with his or her investment in
Purchased Shares.
Actual shares offered and sold as "Purchased Shares" and "Stock Units" are
authorized by Section 9 of the Omnibus Plan. Each Stock Unit represents a right
to receive, at the time of settlement specified in the Program, one share of
Stock. In addition, during the period each Stock Unit is outstanding (i.e.,
prior to settlement or forfeiture), the Participant is entitled to crediting of
dividend equivalents as specified in Section 6(b) in respect of each Stock Unit.
Stock Units will include fractional stock units calculated to not less than
three decimal places. An Option is a non-qualified stock option granted under
Section 6 of the Omnibus Plan. The foregoing notwithstanding, if a Participant
deposits previously acquired shares into his or her Purchased Share Account,
such shares shall not be deemed an issuance of shares under the Omnibus Plan and
shall not count against the number of shares reserved for issuance under the
Omnibus Plan.
5. Election to Participate and Invest in Program; Purchased
Shares.
(a) Offering Periods and Elections. The initial period during
which eligible persons may elect to participate and invest (the "1997 Offering
Period") under the Program will close on February 18, 1997. The closing date of
any other offering period under the Program will be specified by the Committee.
Before a closing date, each person eligible to elect to participate in that
offering period shall be notified by the Committee of the terms of the Program,
including the amount such person is permitted to invest toward Purchased Shares,
the permitted ways to make the investment, the date (the "Purchase Date") on
which the price of Purchased Shares (the "Purchase Price") will be determined,
and the offering period closing date, and shall be provided with an election
form by which such person may elect (i) the amount to be invested in Purchased
Shares and (ii) the manner in which the amount to be invested in Purchased
Shares will be paid. Unless otherwise determined by the Committee, a Participant
may invest in Purchased Shares in two ways:
(i) on a pre-tax basis, by directing that (A) all or part of
any cash incentive bonus that may become payable within six months
after the end of the offering period be applied to the amount invested;
or (B) all or part of an account balance under the Melville Deferred
Compensation Plan (or a successor plan) be applied to the amount
invested; or
(ii) on an after-tax basis, by depositing shares of Stock
previously acquired by the Participant into the Participant's Purchased
Share Account promptly following the Purchase Date.
If previously acquired shares are deposited in payment for Purchased Shares,
each such deposited share shall be deemed to have a value equal to the Purchase
Price of one Purchased Share. An eligible person who elects to participate shall
be liable for full payment of the amount
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<PAGE>
elected to be invested so that, if the manner of payment elected by the
Participant fails to provide full payment, the Participant will be notified and
required to promptly pay any unpaid balance of the amount to be invested in cash
or through such other means as may be agreed to by the Committee.
(b) Acquisition of Purchased Shares. The Company shall
establish and maintain for each Participant in each Offering Period a Purchased
Share Account, which shall have the following subaccounts (as applicable):
(i) A "Pre-Tax Subaccount" for crediting of Stock Units as a
result of a pre-tax investment; or
(ii) An "After-Tax Subaccount" for deposit and holding of
actual shares as a result of an after-tax investment paid by the
deposit of previously acquired shares.
At the Purchase Date for an Offering Period, there shall be credited to the
Participant's Pre-Tax Subaccount a number of Purchased Shares, in the form of
Stock Units, equal to the pre-tax amount invested divided by the Purchase Price
(rounded up to the next whole number of Stock Units), and there shall be
deposited into the Participant's After-Tax Subaccount a number of Purchased
Shares, in the form of actual shares of Stock, equal to the after-tax amount
invested divided by the Purchase Price (rounded up to the next whole number of
shares). The After-Tax Subaccount shall be an account maintained by a
broker-dealer, the Company's transfer agent, or such other party as may be
designated by the Company for the benefit of the Participant (the "Custodian").
The foregoing notwithstanding, if a Participant has deposited cash to be used
for the purchase of actual shares as Purchased Shares through open-market
purchases, the number of such Participant's Purchased Shares for purposes of
Sections 6(a) and 7(a) shall be deemed to be the number purchasable at the
Purchase Price, rounded up to the next whole number of shares, even though the
number of actual shares acquired by the Custodian for the Participant's
After-Tax Account may differ.
(c) Certain Terms of Pre-Tax and After-Tax Subaccounts. Stock
Units credited as Purchased Shares to the Pre-Tax Subaccount shall be subject to
the terms of Sections 6(b) (dividend equivalents), 6(c) (settlement), and 6(d)
(optional deferral). If so permitted by the Custodian, dividends and
distributions on Purchased Shares in the After-Tax Subaccount shall be
automatically reinvested in additional shares, which then shall be subject to
the same terms and conditions applicable to Purchased Shares. If such dividend
reinvestment is not so permitted, the Committee shall determine whether and how
dividends and distributions on Purchased Shares in the After-Tax Subaccount
shall be held or invested under such Subaccount. The Participant shall execute
any document required by the Company and such Custodian in order to give effect
to the terms of the Program.
(d) Restrictions on Withdrawals and Dispositions of Purchased
Shares. Purchased Shares in the form of Stock Units credited to the
Participant's Pre-Tax Subaccount may not be transferred, withdrawn, or otherwise
disposed of prior to the settlement of such Stock Units (generally not earlier
than the fifth anniversary of the Purchase Date), and shall be settled at the
time and in the manner specified in Section 6(c) (subject to Section 8(b)).
Purchased Shares in the form of actual shares deposited in the Participant's
After-Tax Subaccount are subject to no
-3-
<PAGE>
restriction on transfer, withdrawal, or other dispositions, except that any such
disposition prior to the settlement of Matching Restricted Stock Units relating
to such Purchased Shares will result in the forfeiture of Matching Restricted
Stock Units and Options as specified in Section 8(e). Purchased Shares in the
form of actual shares will be settled by means of the lapse of this risk of
forfeiture of related Matching Restricted Stock Units and Options. Each
Participant for whom an After-Tax Subaccount is established shall authorize and
direct the Custodian to inform the Company of any transaction affecting the
Purchased Shares or other event under such Subaccount prior to the settlement of
the Matching Restricted Stock Units to which such Purchased Shares relate.
6. Matching Restricted Stock Units; Certain Terms Applicable to
Stock Units and Matching Restricted Stock Units.
(a) Grant of Matching Restricted Stock Units. Each Participant
shall be granted, as of the Purchase Date, a number of Matching Restricted Stock
Units equal to the number of Purchased Shares the Participant has invested in at
that date (subject to adjustment). The Company shall establish and maintain for
each Participant in each Offering Period a Matching Account to which Matching
Restricted Stock Units shall be credited under this Section 6.
(b) Dividend Equivalents. A Participant shall be entitled to
receive dividend equivalents in respect of Stock Units, including both Stock
Units credited to a Pre-Tax Subaccount and Matching Restricted Stock Units
credited to a Matching Account, as follows:
(i) Dividends Other Than Stock Dividends. If the Company
declares and pays any dividend or distribution on Stock in the form of
cash or any other property other than Stock, the record date of which
is prior to the settlement of Stock Units and/or Matching Restricted
Stock Units, the Company shall credit, as of the payment date of such
dividend or distribution, a number of additional Stock Units to the
Participant's Pre-Tax Subaccount and the number of additional Matching
Restricted Stock Units to the Participant's Matching Account determined
by multiplying (A) the amount of cash actually paid plus the fair
market value at such payment date of any such property actually paid as
a dividend or distribution per share of Stock times (B) the number of
Stock Units and Matching Restricted Stock Units credited to the
respective account at the record date and dividing the product by (C)
the Fair Market Value per share of Stock on the dividend or
distribution payment date.
(ii) Stock Dividends and Stock Splits. If the Company declares
and pays a dividend or distribution in the form of Stock payable on
Stock, or their occurs a forward stock split of the Stock, the record
date of which is prior to the settlement of Stock Units and/or Matching
Restricted Stock Units, the Company shall credit, as of the payment
date of such dividend, distribution, or split, a number of additional
Stock Units to the Participant's Pre-Tax Subaccount and the number of
additional Matching Restricted Stock Units to the Participant's
Matching Account equal to the number of shares of Stock paid as a
dividend or distribution per share of Stock or distributed as a result
of the split per share of Stock multiplied by the number of Stock Units
and Matching Restricted Stock Units credited to the respective account
at the record date.
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<PAGE>
(iii) Other Terms Applicable to Stock Units and Matching
Restricted Stock Units Resulting from Dividends or Splits. Additional
Stock Units or Matching Restricted Stock Units credited under this
Section 6(b) will be subject to the same terms, including the risk of
forfeiture in the case of Matching Restricted Stock Units, as the Stock
Units or Matching Restricted Stock Units in respect of which they were
credited. No such additional Matching Restricted Stock Units will be
credited to a Participant in respect of Matching Restricted Stock Units
forfeited under Section 8 on or before the payment date for the
dividend, distribution, or split.
A Participant shall not be entitled to receive actual dividends in respect of
Stock Units or Matching Restricted Stock Units prior to the issuance of Stock in
settlement thereof.
(c) Settlement. Stock Units, and Matching Restricted Stock
Units not previously forfeited under Section 8(c), shall be settled on the fifth
anniversary of the Purchase Date; provided, however, that the Stock Units, and
Matching Restricted Stock Units not previously forfeited, shall be settled on an
accelerated basis as set forth in Section 8(c), and the Committee may, in other
circumstances in its discretion, accelerate such settlement; and provided
further, that the settlement of Stock Units and Matching Restricted Stock Units
may be deferred by the prior election of the Participant as permitted under
Section 6(d). Such settlement shall be effected by issuance and delivery, as
promptly as practicable on or after the settlement date, of one share of Stock
for each Stock Unit and each Matching Restricted Stock Unit being settled. The
Committee may, in its discretion, make delivery of shares hereunder by
depositing such shares into an account maintained by or for the Participant (or
of which the Participant is a joint owner, with the consent of the Participant),
including an After-Tax Subaccount established under the Program or another
account established in connection with a plan or arrangement providing for
investment in Stock and under which the Participant's rights are similar in
nature to those under a stock brokerage account. If the Committee determines to
settle Stock Units and Matching Restricted Stock Units by making a deposit of
shares into such an account, the Company may settle any fractional Unit by means
of such deposit if practicable under the terms of such account. In other
circumstances or if so determined by the Committee, the Company may instead pay
cash in lieu of delivery of a fractional share, on such basis as the Committee
may determine. In no event will the Company in fact issue fractional shares.
Upon such settlement, all obligations of the Company in respect of such Stock
Units and Matching Restricted Stock Units shall be terminated, and the shares so
distributed shall not be subject to any risk of forfeiture or restriction on
transferability imposed under the Program.
(d) Optional Deferral of Settlement of Stock Units. A
Participant may defer settlement of Stock Units and/or Matching Restricted Stock
Units if approved by the Committee and on such terms as may be specified by the
Committee.
7. Options.
(a) Grant of Options; Exercise Price. Each Participant shall
be granted, as of the Purchase Date, an Option to purchase a number of shares
equal to the whole number that is ten times the number of Purchased Shares the
Participant has invested in at that date (subject to adjustment). The exercise
price per share of the Option will equal the Purchase Price of the Purchased
Shares (subject to adjustment).
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<PAGE>
(b) Exercisability. A Participant's Option may be exercised
only to the extent it has become exercisable. The Option (to the extent not
previously expired) shall become exercisable for one-third of the underlying
shares on each of the third, fourth, and fifth anniversaries of the Purchase
Date, provided, however, that the Option (to the extent not previously expired)
shall become exercisable on an accelerated basis as set forth in Section 8(d),
and the Committee may, in other circumstances in its discretion, accelerate the
exercisability of the Option. The Option may be exercised only to purchase whole
shares; no fractional shares will be issued upon exercise of the Option.
(c) Expiration. A Participant's Option, to the extent that it
has not been earlier exercised, shall expire the day before the tenth
anniversary of the date as of which the Option was granted (the "Scheduled
Expiration Date"), provided, however, that if the Participant has a Termination
of Employment prior to the Scheduled Expiration Date, the Option shall expire at
the time specified in Section 8(d).
(d) Manner of Exercise. Options may be exercised in whole or
in part, from time to time, all subject to the limitations on exercise set forth
in this Section 7. Exercise shall be accomplished in accordance with Section 6
of the Omnibus Plan. At the time of exercise, the exercise price of the number
of shares as to which the Option is being exercised shall be tendered to the
Company. The exercise price of such Option shares shall be paid in cash or by
check or, subject to Section 9(f), by surrender to the Company of shares of the
Company's Stock (valued at their Fair Market Value on the date of exercise)
other than shares acquired from the Company by exercise of an option during the
preceding six months, or by a combination of cash, check, and surrender of such
shares. For this purpose, the Participant may direct that Purchased Shares,
including Stock Units, and Matching Restricted Stock Units shall be deemed to be
tendered in payment of the exercise price. In such case, an equivalent number of
shares acquired upon such exercise shall remain subject to the terms and
conditions applicable to the Purchased Shares or Matching Restricted Stock Units
deemed to have been tendered, and such tender shall not be deemed to be a
disposition of such Purchased Shares or Matching Restricted Stock Units for
purposes of the Program. In addition to the method of exercise and payment set
forth in this Section 7(d), the Option may be exercised and payment to the
Company made in accordance with any other procedures made available from time to
time by the Committee.
8. Forfeiture and Acceleration Upon Termination or Change in
Control.
(a) Definition of Terms Relating to Termination and Change in
Control. For purposes of the Program, terms relating to termination and change
in control of the Company shall be defined for a given Participant as follows:
(i) The terms "Cause," "Change in Control," "Constructive
Termination," "Disability," "Normal Retirement," and "Approved Early
Retirement" shall have the meanings defined in the Participant's
employment agreement or, if none, change in control agreement with the
Company, as then in effect.
(ii) The term "Termination of Employment" means a termination
of the Participant's employment with the Company or a subsidiary after
which he or she is not continuing as an employee of the Company or any
subsidiary.
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<PAGE>
(b) Purchased Shares. In the event of a Participant's
Termination of Employment for any reason and in the event of a Change in
Control, all of the Participant's outstanding Purchased Shares will be settled
in accordance with Sections 5(d) and 6(c) as promptly as practicable following
such event, except as such settlement of Stock Units credited to the
Participant's Pre-Tax Subaccount may be deferred by the prior election of the
Participant as permitted under Section 6(d). Purchased Shares are not
forfeitable in any circumstance.
(c) Matching Restricted Stock Units. In the event of a
Participant's Termination of Employment due to death, Disability, Normal
Retirement, Approved Early Retirement, or by the Company but not for Cause, and
in the event of a Change in Control, all of the Participant's outstanding
Matching Restricted Stock Units will be settled in accordance with Section 6(c)
as promptly as practicable following such Termination, except as such settlement
may be deferred by the prior election of the Participant as permitted under
Section 6(d). In the event of a Participant's voluntary Termination of
Employment or Termination of Employment by the Company for Cause, all of the
Participant's outstanding Matching Restricted Stock Units will be immediately
forfeited.
(d) Options. In the event of a Participant's Termination of
Employment due to death, Disability, Normal Retirement, or Approved Early
Retirement, or by the Company but not for Cause, and in the event of a Change in
Control, all of the Participant's outstanding Options that are not then
exercisable will become immediately exercisable. In addition, in the event of
such Termination of Employment the Participant's Options shall expire as
follows:
(i) In the event of a Participant's Termination of Employment
due to death or Disability, the Participant's Options will expire at
the earlier of the first anniversary of such Termination or the
Scheduled Expiration Date.
(ii) In the event of a Participant's Termination of Employment
due to Normal Retirement, Approved Early Retirement, or by the Company
prior to a Change in Control and not for Cause, the Participant's
Options will expire at the earlier of the third anniversary of such
Termination or the Scheduled Expiration Date.
(iii) In the event of a Participant's voluntary Termination of
Employment prior to a Change in Control, the Participant's Options that
are not then exercisable will be forfeited and expire immediately, and
the Participant's Options that are exercisable at the time of such
Termination will expire at the earlier of 90 days following such
Termination or the Scheduled Expiration Date.
(iv) In the event of a Participant's voluntary Termination of
Employment after a Change in Control, Constructive Termination after a
Change in Control, or Termination of Employment by the Company after a
Change in Control and not for Cause, the Participant's Options will
expire at the earlier of the Scheduled Expiration Date or the first
anniversary of Participant's death.
(v) In the event of a Participant's Termination of Employment
by the Company for Cause, all of the Participant's Options will be
forfeited and expire immediately.
-7-
<PAGE>
The foregoing notwithstanding, if any provision of an employment agreement
between the Company and the Participant in effect, or policy, including an
income continuation policy, applicable to the Participant and in effect, at the
time of a Change in Control or Termination of Employment would provide the
Participant with more favorable treatment with respect to Matching Restricted
Stock Units or Options than under this Section 8, such provision shall govern.
(e) Dispositions of Purchased Shares from After-Tax Account.
Except as provided in Section 7(d), Purchased Shares in the form of Stock Units
credited to a Pre-Tax Subaccount are non-transferable. Purchased Shares
deposited in an After-Tax Subaccount are not restricted as to transferability,
but, except as provided in Section 7(d), if a Participant sells, withdraws, or
otherwise disposes of Purchased Shares from his or her After-Tax Subaccount
prior to the settlement of Matching Restricted Stock Units relating to such
Purchased Shares, the Participant will immediately forfeit the number of
Matching Restricted Stock Units (including additional Matching Restricted Stock
Units acquired as a result of deemed dividend reinvestment on previously
credited Matching Restricted Stock Units) that were credited with respect to the
Purchased Shares disposed of, and the Participant will immediately forfeit all
or a portion of the Option granted in respect of the Purchased Shares disposed
of determined as follows: Such Participant shall forfeit the Option to purchase
ten shares for each Purchased Share so disposed of, except that only the portion
of the Option that is not yet exercisable shall be forfeited and, therefore, the
maximum number of underlying shares as to which the Option is forfeitable under
this Section 8(e) shall not exceed the number of underlying shares as to which
the Option had not yet become exercisable.
9. General Provisions.
(a) Adjustments. Purchased Shares (including both actual
shares and Stock Units), Matching Restricted Stock Units, Options, and
optionally deferred Stock Units, and terms relating thereto, shall be subject to
adjustment in accordance with Section 10 of the Omnibus Plan.
(b) Nontransferability. Stock Units, Matching Restricted Stock
Units, Options, and all rights relating thereto shall not be transferable or
assignable by a Participant, other than by will or the laws of descent and
distribution (or pursuant to a beneficiary designation if and to the extent
authorized by the Committee), and shall not be pledged, hypothecated, or
otherwise encumbered in any way or subject to execution, attachment, or similar
process.
(c) Certain Other Terms. Terms relating to compliance with
legal obligations, withholding of shares issuable in settlement of Stock Units
and Matching Restricted Stock Units, and upon exercise of Options, to pay tax
withholding obligations, and terms applicable to Awards under the Program are
set forth in Section 11 of the Omnibus Plan.
(d) No Partnership Rights or Rights to Participate. A
Participant's participation in the Program, investment in Purchased Shares, and
grant of an Award under the Program confers no rights as a partner of a
partnership. No Participant or employee will have any claim to participate in
any offering period under the Program, except as selected by the Committee for a
given offering period, and the Company will have no obligation to continue the
Program for any offering period after the initial 1997 Offering Period.
-8-
<PAGE>
(e) Changes to the Program. The Committee may amend, alter,
suspend, discontinue, or terminate the Program without the consent of
Participants; provided, however, that, without the consent of an affected
Participant, no such action shall materially and adversely affect the rights of
such Participant with respect to an outstanding Award.
(f) Limitation on Repurchase Obligation. The Company will not
be obligated to repurchase shares from a Participant to pay the exercise price
or withholding taxes relating to an exercise of an Option or settlement of Stock
Units or Matching Restricted Stock Units if the Committee determines, prior to
completion of any such repurchase, that such repurchase will not be permitted,
in an individual case or generally; provided, however, that the Committee will
have no power to prevent such a repurchase in a given case if such power would
require the Committee to separately approve a repurchase from a Participant then
subject to Section 16 of the Exchange Act in respect of the Company in order for
such repurchase to be exempt under Rule 16b-3(e).
(g) Agreements and Other Documents. The Committee shall
specify agreements or other documents to evidence rights and obligations under
the Program. A form of agreement that may be used to evidence rights and
obligations relating to Purchased Shares, Stock Units, and Matching Restricted
Stock Units is attached hereto as Exhibit B, and a form of agreement that may be
used to evidence rights and obligations relating to Options is attached hereto
as Exhibit C.
(h) Governing Law. The validity, construction, and effect of
the Program and agreements and related documents hereunder will be determined in
accordance with the Delaware General Corporation Law, to the extent applicable,
and other laws (including those governing contracts) of the State of Rhode
Island, without giving effect to principles of conflicts of laws, and applicable
federal law.
10. Effective Date and Termination of Program. The Program shall become
effective on January 1, 1997. Unless earlier terminated under Section 9(e), the
Program shall terminate at such time as no Stock Units or Options previously
acquired or granted under the Program remain outstanding.
-9-
Part II Exhibit 15.1
================================================================================
Letter re: Unaudited Interim Financial Information
CVS CorSporation
Woonsocket, Rhode Island
Board of Directors:
Re: Registration Statements Numbers 333-49407, 33-40251, 333-34927, 333-28043,
33-17181, 2-97913, 2-77397 and 2-53766 on Form S-8 and 333-52055 on
Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 29, 1998 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG PEAT MARWICK LLP
Providence, Rhode Island
August 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheets, and the consolidated condensed statements
of operations found in the Company's Form 10-Q for the six months ended June 27,
1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-27-1998
<EXCHANGE-RATE> 1.00
<CASH> 62,000
<SECURITIES> 0
<RECEIVABLES> 539,400
<ALLOWANCES> 40,100
<INVENTORY> 2,938,000
<CURRENT-ASSETS> 3,848,900
<PP&E> 1,859,200
<DEPRECIATION> 687,300
<TOTAL-ASSETS> 6,062,600
<CURRENT-LIABILITIES> 2,742,000
<BONDS> 289,800
0
281,700
<COMMON> 4,000
<OTHER-SE> 2,571,100
<TOTAL-LIABILITY-AND-EQUITY> 6,062,600
<SALES> 7,357,400
<TOTAL-REVENUES> 7,357,400
<CGS> 5,330,000
<TOTAL-COSTS> 5,330,000
<OTHER-EXPENSES> 1,713,900
<LOSS-PROVISION> 900
<INTEREST-EXPENSE> 30,100
<INCOME-PRETAX> 283,400
<INCOME-TAX> 135,200
<INCOME-CONTINUING> 148,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,200
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> MAR-28-1998
<EXCHANGE-RATE> 1.00
<CASH> 135,600
<SECURITIES> 0
<RECEIVABLES> 503,600
<ALLOWANCES> 39,300
<INVENTORY> 3,147,900
<CURRENT-ASSETS> 4,051,700
<PP&E> 1,764,000
<DEPRECIATION> 661,300
<TOTAL-ASSETS> 6,176,200
<CURRENT-LIABILITIES> 2,965,200
<BONDS> 290,000
0
284,300
<COMMON> 2,000
<OTHER-SE> 2,456,700
<TOTAL-LIABILITY-AND-EQUITY> 6,176,200
<SALES> 3,601,500
<TOTAL-REVENUES> 3,601,500
<CGS> 2,594,600
<TOTAL-COSTS> 2,594,600
<OTHER-EXPENSES> 768,000
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 11,200
<INCOME-PRETAX> 227,700
<INCOME-TAX> 95,600
<INCOME-CONTINUING> 132,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,000
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 192,500
<SECURITIES> 0
<RECEIVABLES> 491,600
<ALLOWANCES> 39,200
<INVENTORY> 2,882,400
<CURRENT-ASSETS> 3,892,100
<PP&E> 1,696,100
<DEPRECIATION> 623,900
<TOTAL-ASSETS> 5,978,900
<CURRENT-LIABILITIES> 2,910,600
<BONDS> 290,300
0
284,600
<COMMON> 2,000
<OTHER-SE> 2,328,000
<TOTAL-LIABILITY-AND-EQUITY> 5,978,900
<SALES> 13,749,600
<TOTAL-REVENUES> 13,749,600
<CGS> 10,031,300
<TOTAL-COSTS> 10,031,300
<OTHER-EXPENSES> 3,456,900
<LOSS-PROVISION> 15,300
<INTEREST-EXPENSE> 44,100
<INCOME-PRETAX> 217,300
<INCOME-TAX> 140,800
<INCOME-CONTINUING> 76,500
<DISCONTINUED> 17,500
<EXTRAORDINARY> (17,100)
<CHANGES> 0
<NET-INCOME> 76,900
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1.00
<CASH> 191,700
<SECURITIES> 0
<RECEIVABLES> 402,100
<ALLOWANCES> 52,200
<INVENTORY> 2,657,600
<CURRENT-ASSETS> 3,532,900
<PP&E> 1,734,300
<DEPRECIATION> 671,600
<TOTAL-ASSETS> 5,690,600
<CURRENT-LIABILITIES> 2,673,900
<BONDS> 331,100
0
285,800
<COMMON> 1,900
<OTHER-SE> 2,190,700
<TOTAL-LIABILITY-AND-EQUITY> 5,690,600
<SALES> 10,133,300
<TOTAL-REVENUES> 10,133,300
<CGS> 7,386,800
<TOTAL-COSTS> 7,386,800
<OTHER-EXPENSES> 2,708,100
<LOSS-PROVISION> 15,300
<INTEREST-EXPENSE> 38,300
<INCOME-PRETAX> 100
<INCOME-TAX> 47,200
<INCOME-CONTINUING> (47,100)
<DISCONTINUED> 17,500
<EXTRAORDINARY> (17,100)
<CHANGES> 0
<NET-INCOME> (46,700)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.16)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1.00
<CASH> 109,000
<SECURITIES> 4,100
<RECEIVABLES> 439,300
<ALLOWANCES> 33,700
<INVENTORY> 2,498,300
<CURRENT-ASSETS> 3,400,400
<PP&E> 1,711,500
<DEPRECIATION> 640,700
<TOTAL-ASSETS> 5,654,000
<CURRENT-LIABILITIES> 2,430,900
<BONDS> 609,800
0
286,300
<COMMON> 1,900
<OTHER-SE> 2,091,700
<TOTAL-LIABILITY-AND-EQUITY> 5,654,000
<SALES> 6,804,600
<TOTAL-REVENUES> 6,804,600
<CGS> 4,963,700
<TOTAL-COSTS> 4,963,700
<OTHER-EXPENSES> 1,956,000
<LOSS-PROVISION> 7,600
<INTEREST-EXPENSE> 29,100
<INCOME-PRETAX> (144,200)
<INCOME-TAX> (14,900)
<INCOME-CONTINUING> (129,300)
<DISCONTINUED> 17,500
<EXTRAORDINARY> (17,100)
<CHANGES> 0
<NET-INCOME> (128,900)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1.00
<CASH> 395,200
<SECURITIES> 181,600
<RECEIVABLES> 437,200
<ALLOWANCES> 44,500
<INVENTORY> 2,515,500
<CURRENT-ASSETS> 3,683,000
<PP&E> 1,676,200
<DEPRECIATION> 601,200
<TOTAL-ASSETS> 5,967,300
<CURRENT-LIABILITIES> 2,020,600
<BONDS> 1,195,800
0
296,300
<COMMON> 1,900
<OTHER-SE> 2,218,200
<TOTAL-LIABILITY-AND-EQUITY> 5,967,300
<SALES> 3,397,800
<TOTAL-REVENUES> 3,397,800
<CGS> 2,430,000
<TOTAL-COSTS> 2,430,000
<OTHER-EXPENSES> 791,900
<LOSS-PROVISION> 7,600
<INTEREST-EXPENSE> 12,900
<INCOME-PRETAX> 163,100
<INCOME-TAX> 71,000
<INCOME-CONTINUING> 92,100
<DISCONTINUED> 100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,200
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 506,800
<SECURITIES> 181,400
<RECEIVABLES> 411,800
<ALLOWANCES> 36,900
<INVENTORY> 2,465,900
<CURRENT-ASSETS> 3,732,600
<PP&E> 1,626,600
<DEPRECIATION> 564,000
<TOTAL-ASSETS> 6,014,900
<CURRENT-LIABILITIES> 2,192,300
<BONDS> 1,204,800
0
298,600
<COMMON> 1,800
<OTHER-SE> 2,113,400
<TOTAL-LIABILITY-AND-EQUITY> 6,014,900
<SALES> 11,831,600
<TOTAL-REVENUES> 11,831,600
<CGS> 8,530,700
<TOTAL-COSTS> 8,530,700
<OTHER-EXPENSES> 2,709,000
<LOSS-PROVISION> 1,600
<INTEREST-EXPENSE> 69,900
<INCOME-PRETAX> 643,400
<INCOME-TAX> 271,000
<INCOME-CONTINUING> 372,400
<DISCONTINUED> (164,200)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208,200
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<EXCHANGE-RATE> 1.00
<CASH> 122,400
<SECURITIES> 44,400
<RECEIVABLES> 530,400
<ALLOWANCES> 55,100
<INVENTORY> 2,741,400
<CURRENT-ASSETS> 3,665,000
<PP&E> 1,961,300
<DEPRECIATION> 645,500
<TOTAL-ASSETS> 6,011,000
<CURRENT-LIABILITIES> 2,195,800
<BONDS> 921,100
1,300
298,600
<COMMON> 171,900
<OTHER-SE> 2,501,000
<TOTAL-LIABILITY-AND-EQUITY> 6,011,000
<SALES> 8,506,700
<TOTAL-REVENUES> 8,506,700
<CGS> 6,110,700
<TOTAL-COSTS> 6,110,700
<OTHER-EXPENSES> 1,980,000
<LOSS-PROVISION> 1,600
<INTEREST-EXPENSE> 55,000
<INCOME-PRETAX> 463,100
<INCOME-TAX> 195,100
<INCOME-CONTINUING> 268,000
<DISCONTINUED> (161,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,000
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<EXCHANGE-RATE> 1.00
<CASH> 120,900
<SECURITIES> 101,800
<RECEIVABLES> 384,200
<ALLOWANCES> 53,500
<INVENTORY> 2,590,700
<CURRENT-ASSETS> 3,457,600
<PP&E> 1,964,600
<DEPRECIATION> 666,300
<TOTAL-ASSETS> 5,892,000
<CURRENT-LIABILITIES> 1,971,000
<BONDS> 1,092,300
1,300
298,600
<COMMON> 171,900
<OTHER-SE> 2,438,400
<TOTAL-LIABILITY-AND-EQUITY> 5,892,000
<SALES> 5,653,400
<TOTAL-REVENUES> 5,653,400
<CGS> 4,043,100
<TOTAL-COSTS> 4,043,100
<OTHER-EXPENSES> 1,298,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,800
<INCOME-PRETAX> 349,200
<INCOME-TAX> 147,400
<INCOME-CONTINUING> 201,800
<DISCONTINUED> (179,800)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 127,200
<SECURITIES> 208,900
<RECEIVABLES> 521,300
<ALLOWANCES> 54,600
<INVENTORY> 2,998,400
<CURRENT-ASSETS> 4,083,200
<PP&E> 2,309,000
<DEPRECIATION> 791,300
<TOTAL-ASSETS> 6,647,300
<CURRENT-LIABILITIES> 2,677,600
<BONDS> 1,018,000
1,300
298,600
<COMMON> 171,000
<OTHER-SE> 2,450,500
<TOTAL-LIABILITY-AND-EQUITY> 6,647,300
<SALES> 2,765,600
<TOTAL-REVENUES> 2,765,600
<CGS> 1,969,400
<TOTAL-COSTS> 1,969,400
<OTHER-EXPENSES> 639,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,900
<INCOME-PRETAX> 140,200
<INCOME-TAX> 60,500
<INCOME-CONTINUING> 79,700
<DISCONTINUED> (26,300)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,400
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial data reported in this schedule has been
restated to reflect the merger of CVS Corporation and Arbor
Drugs, Inc. which was accounted for as a pooling of interests.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.00
<CASH> 180,900
<SECURITIES> 176,900
<RECEIVABLES> 524,800
<ALLOWANCES> 59,300
<INVENTORY> 2,923,200
<CURRENT-ASSETS> 4,058,800
<PP&E> 2,290,400
<DEPRECIATION> 778,300
<TOTAL-ASSETS> 6,614,400
<CURRENT-LIABILITIES> 2,629,200
<BONDS> 1,056,300
1,300
334,900
<COMMON> 170,900
<OTHER-SE> 2,060,300
<TOTAL-LIABILITY-AND-EQUITY> 6,614,400
<SALES> 10,513,100
<TOTAL-REVENUES> 10,513,100
<CGS> 7,553,112
<TOTAL-COSTS> 7,553,112
<OTHER-EXPENSES> 2,688,200
<LOSS-PROVISION> 14,600
<INTEREST-EXPENSE> 114,000
<INCOME-PRETAX> 157,800
<INCOME-TAX> 74,300
<INCOME-CONTINUING> 83,500
<DISCONTINUED> (630,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (547,100)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> (1.55)
</TABLE>
