As filed with the Securities and Exchange Commission on May 7, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CVS Corporation
(Exact Name of Registrant as specified in its charter)
Delaware 05-0494040
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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One CVS Drive
Woonsocket, Rhode Island 02895
(401) 765-1500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Charles C. Conaway
Executive Vice President and Chief Financial Officer
CVS Corporation
One CVS Drive
Woonsocket, Rhode Island 02895
(401) 765-1500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<CAPION>
<S> <C> <C>
Dennis S. Hersch, Esq. Alan S. Schwartz, Esq. Robert E. Buckholz, Jr., Esq.
Deanna L. Kirkpatrick, Esq. Norman Beitner, Esq. Sullivan & Cromwell
Davis Polk & Wardwell Honigman Miller Schwartz and Cohn 125 Broad Street
450 Lexington Avenue 2290 First National Building New York, New York 10004
New York, New York 10017 Detroit, Michigan 48226-3583 (212) 558-4000
(212) 450-4000 (313) 256-7800
</TABLE>
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Number of Maximum Maximum
Shares to be Offering Price Aggregate Amount of
Title of Each Class of Securities to be Registered Registered(1) Per Share (2) Offering Price (2) Registration Fee
- -------------------------------------------------- ------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share(3)......... 2,500,000 $69.71875 $174,296,875 $51,419
<FN>
(1) Includes shares of Common Stock as to which the Underwriters have been
granted an option to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee based
upon the average of the reported high and low sales prices of the Common
Stock on the New York Stock Exchange on May 6, 1998.
(3) Up to shares of Common Stock registered hereby may be delivered
upon the exchange of Trust Automatic Common Exchange Securities registered
on a separate registration statement on Form N-2 (Registration Nos.
333-41617 and 811-08539). Such number of shares of Common Stock that
may be delivered upon such exchange is subject to adjustment in
accordance with Rule 416. Since such shares of Common Stock are
deliverable only upon the exchange of Trust Automatic Common Exchange
Securities for which a registration fee is being paid pursuant to the
registration statement referenced above, no further registration fee
with respect to such shares is required pursuant to the provisions of
Rule 457(i). No more than of the shares of Common Stock initially
registered hereunder will be offered directly for consideration by the
selling stockholders referenced herein.
</FN>
</TABLE>
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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EXPLANATORY NOTE
This Registration Statement relates to up to shares
(or shares if the Underwriters' over-allotment option is exercised in full)
of Common Stock, par value $.01 per share (the "Common Stock"), of CVS
Corporation (the "Company" or "CVS") that will be offered for sale directly
to the public, and up to shares (or shares if the Underwriters' over-
allotment option is exercised in full) of Common Stock that may be
delivered by the CVS Automatic Common Exchange Security Trust (the
"Trust"), a non-diversified closed-end management investment company, to
holders of Trust Automatic Common Exchange Securities of the Trust (the
"Automatic Common Exchange Securities") upon exchange of the Automatic
Common Exchange Securities. The Automatic Common Exchange Securities are
being offered pursuant to a separate prospectus of the Trust (the "Trust
Prospectus") included in a registration statement on Form N-2 (Registration
Nos. 333-41617 and 811-08539). The complete Prospectus for the Common
Stock offering follows immediately. After such Prospectus are the
alternate pages for the prospectus to be attached to the Trust Prospectus.
All other pages of the Prospectus for the Common Stock offering will be
used in the prospectus to be attached to the Trust Prospectus.
SUBJECT TO COMPLETION, DATED MAY 7, 1998
Shares
CVS Corporation
Common Stock
(par value $.01 per share)
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All the shares of Common Stock offered are being sold by the
Selling Stockholders. See "Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares and the Company will
bear certain expenses relating to the registration and sale of the shares.
The Selling Stockholders received the shares offered hereby in connection with
the merger of the Company and Arbor Drugs, Inc., which was consummated on
March 31, 1998.
The last reported sale price of the Common Stock, which is
listed under the symbol "CVS", on the New York Stock Exchange on May 6, 1998
was $69 3/8 per share. See "Price Range of Common Stock".
In addition to the offering made hereby, the Selling
Stockholders are offering up to shares of Common Stock (exclusive of
over-allotment shares) that may be delivered by the CVS Automatic Common
Exchange Security Trust (the "Trust") to holders of Trust Automatic Common
Exchange Securities (the "Automatic Common Exchange Securities") upon exchange
of such securities on . The respective closings of the offerings
of the Common Stock and the Automatic Common Exchange Securities are not
dependent on one another. See "Underwriting".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Initial Public Underwriting Proceeds to Selling
Offering Price Discount(1) Stockholders(2)
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Per Share.... $ $ $
Total(3)..... $ $ $
<FN>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Selling
Stockholders and $ payable by the Company.
(3) The Selling Stockholders have granted the Underwriters an option for 30
days to purchase up to an additional shares at the initial public
offering price per share, less the underwriting discount, solely to
cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to
Selling Stockholders will be $ , $ and $ , respectively.
See "Underwriting".
</FN>
</TABLE>
The shares offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that the shares will be ready for delivery through the facilities of
The Depositary Trust Company in New York, New York, on or about ,
1998, against payment therefor in immediately available funds.
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Information contained herein is subject to completion or amendment. A
registration statements relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities law of any such State.
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Goldman, Sachs & Co. Credit Suisse First Boston
The date of this Prospectus is , 1998.
[Map of CVS store locations as of March 28, 1998]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK AND THE AUTOMATIC COMMON EXCHANGE SECURITIES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
AVAILABLE INFORMATION
CVS Corporation ("CVS" or the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
7th Floor, New York, New York 10048. Copies of such materials may be obtained
from the web site that the Commission maintains at http://www.sec.gov. In
addition, such material may also be inspected and copied at the offices of the
New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission
(file No. 1-1011) pursuant to the Exchange Act are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "Company Form 10-K");
2. The Company's Current Reports on Form 8-K filed on February
11, 1998, March 4, 1998, March 27, 1998 and April 3, 1998;
3. The description of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") set forth in
the Company's Registration Statement on Form 8-B filed on
November 4, 1996; and
4. All other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus and prior to the
termination of the offering of the Shares.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is
delivered, upon the written or oral request of such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such information (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed
to Attention: Nancy R. Christal, Vice President, Investor Relations, CVS
Corporation, 670 White Plains Road, Suite 210, Scarsdale, New York, 10583,
(800) 201-0938.
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Any statement contained in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified shall not be
deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute part of this
Prospectus.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain
forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements include information concerning future results of
operations, cost savings and synergies of the Company following the merger
with Revco D.S., Inc. ("Revco") and the merger with Arbor Drugs, Inc.
("Arbor"); information concerning the ability of the Company to elevate the
performance level of Revco stores following the merger with Revco; information
concerning the ability of the Company to continue to achieve significant sales
growth; information concerning the Company's belief that it can continue to
improve operating performance by relocating existing stores to freestanding
locations; information concerning the Company's belief that it can continue to
reduce selling, general and administrative expenses as a percentage of net
sales; and 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 statements preceded by, followed by or that otherwise include
the words: "believes", "expects", "anticipates", "intends", "estimates" or
other similar expressions. For those statements, CVS claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. The following important factors, in
addition to those discussed elsewhere in this document and in the documents
which are incorporated by reference, could affect the future results of the
Company and could cause those results to differ materially from those
expressed in the forward-looking statements: materially adverse changes in
economic conditions generally or in the markets served by the Company; future
regulatory and legislative actions affecting the Company and/or the chain
drugstore industry; 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 and maintain 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
attract, hire and retain suitable pharmacists and management personnel;
relationships with suppliers; and the impact of inflation.
THE COMPANY
Except as otherwise specified herein, the financial results of
the Company set forth below do not include the results of operations of Arbor.
General
CVS is a leader in the chain drugstore industry in the United
States. As of March 31, 1998, after giving effect to the merger with Arbor
discussed below, the Company operated approximately 4,100 stores in 25 states
in the Northeast, Mid-Atlantic, Midwest and Southeast regions and in the
District of Columbia, making CVS one of the largest drugstore chains in the
nation in terms of store count. The combined Company is expected to have
revenues of approximately $15 billion in 1998. The Company's stores are well
positioned, operating in 49 of the top 100 drugstore markets in the country.
CVS commands the number one or two share position in approximately 80% of
these markets. CVS is also among the industry leaders in terms of store
productivity and operating profit margin.
A primary focus of the Company's operations is its pharmacy
business, which represented approximately 54% of total sales for the year. In
1997, the Company dispensed over 225 million prescriptions, making it the
largest drugstore chain in the United States in terms of prescriptions filled
and pharmacy sales. The Company believes that its pharmacy operations will
continue to represent a critical part of its business and strategy due to
favorable trends, including an aging American population, greater
responsibility being borne by Americans for their healthcare, an increasing
demand for retail formats that provide easy access and convenience, discovery
of new and better drug therapies, and the need for cost effective healthcare
solutions.
In addition to prescription drugs and services, the Company
offers a broad selection of general merchandise, presented in a well-organized
fashion, in stores that are designed to be warm, inviting and easy to shop.
Merchandise categories include, among other things, over-the-counter drugs,
greeting cards, film and photo-finishing services, beauty and cosmetics,
seasonal merchandise and convenience foods. The Company also offers over
1,300 products under the CVS private label brand, which accounted for
approximately 11% of the Company's front store sales in 1997. Total front
store sales, which are generally higher margin than pharmacy sales,
represented approximately 46% of total sales for the year.
On May 29, 1997, CVS merged with Revco in an exchange of stock
that was accounted for as a pooling of interests. The merger resulted in CVS
becoming one of the largest chain drugstore companies in the United States
based on store count. On March 31, 1998, CVS acquired Arbor in an exchange of
stock that will be accounted for as a pooling of interests (the "Merger with
Arbor"). Arbor stockholders received for each Arbor share 0.3182 shares of
Common Stock. Arbor is the leading drugstore chain in southeastern Michigan
in terms of store count and sales volume. The Merger with Arbor strengthened
CVS' position as one of the nation's leading chain drugstore companies by
bringing CVS into a high-growth, contiguous geographic market where CVS
previously had no presence.
The Company's principal executive offices are located at One
CVS Drive, Woonsocket, Rhode Island 02895, telephone (401) 765-1500.
Growth Strategies
The Company focuses on a number of initiatives as part of its
strategy to achieve continued growth and build shareholder value. These
initiatives are directed toward driving top-line revenue growth, improving
operating efficiencies and achieving appropriate returns on capital deployed,
and include the following:
Aggressive Store Development
To support growth in its existing stores, the Company has in
place an active remodeling and remerchandising program, which seeks to remodel
20% of the Company's existing stores each year and to remerchandise another
20% each year. In addition, as described more fully below, the Company is
actively seeking to relocate many of its strip shopping center locations to
freestanding sites. During 1997, the Company opened 287 new stores, including
116 relocations of existing stores, and in 1998 following the Merger with
Arbor, expects to open approximately 320 new stores, including approximately
150 relocations. In addition, over the longer term, the Company expects to
open 150 to 200 new stores in the Michigan market. During 1997, the Company
also began the process of converting all retained Revco stores into the CVS
store format. The 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. Both the
conversion of Revco's systems and the re-planograms have been completed, with
the exception of cosmetics, which will occur as the Revco stores are
remodeled. Approximately 900 Revco stores had been remodeled into the CVS
"look and feel" as of March 1998 and the Company expects to complete the Revco
store remodeling project by the end of November 1998.
The addition of new stores has played, and will continue to
play, a major role in the Company's continued growth. As new stores have been
opened, the Company has maintained its objective of securing strong positions
in each market that its stores serve. This provides the Company several
important advantages, including an ability to save on advertising and
distribution costs. It is also an important consideration for managed care
providers, who want to provide their members with convenient access to
pharmacy services. Management anticipates that most of the planned store
openings in 1998 will be based on CVS' 10,125 square foot freestanding
prototype, which includes a drive-through pharmacy. New sites will be selected
based on convenience, with an emphasis on freestanding locations at traffic
controlled intersections.
Management expects that relocations of existing in-line strip
shopping center stores to freestanding locations will account for
approximately 50% of store openings over the next several years.
Historically, as a result of their more convenient locations and larger size,
relocated stores have historically realized significant improvement in
customer count and revenues, driven largely by increased sales of higher margin
front store merchandise. Management expects this trend to continue; however,
there can be no assurance that similar improvements will be achieved in each
geographic market in which the Company operates. See "Cautionary Statement
Regarding Forwarding Looking Statements" above. Freestanding locations require
properties of approximately 1 1/4 acres to support parking for 40-60 cars. As
a result, site selection is also an important aspect of the Company's
relocation program.
Finally, the Company believes that achieving a critical mass in
terms of store count and locating stores in desirable geographic markets is
essential to competing effectively in the context of the current managed care
environment described more fully below. As a result, management believes that
the Company's store development program is an important element of its ability
to maintain its leadership position in the chain drugstore industry.
Integrated Health Care Provider
In 1997, pharmacy sales increased 23.6% to $6.9 billion,
representing approximately 54% of total sales for the year, compared to
pharmacy sales of $5.6 billion in 1996, representing approximately 51% of total
sales for such year. In 1997, CVS pharmacies filled an average of
approximately 1,200 prescriptions per store per week, which was significantly
higher than the average community pharmacy. For the reasons described above,
the Company believes that its pharmacy operations will continue to represent a
critical part of its business and strategy. See "--General" above.
CVS believes that the growth of its pharmacy business will
continue to be driven by the shift toward managed care plans as a means of
controlling healthcare costs. During fiscal 1997, approximately 80% of the
Company's pharmacy sales were attributable to payments by third party
providers under prescription drug plans, as compared to approximately 76% in
1996. The growth in managed care has substantially increased the use of
prescription drugs as managed care providers have (i) made the costs of
prescription drugs more affordable to a greater number of people and (ii)
supported prescription drug therapy as an alternative to more expensive forms
of treatment, such as surgery. In a typical third party payment plan, the
Company has a contract with a third party payor, such as an insurance company,
a prescription benefit management company, a governmental agency, a private
employer, a health maintenance organization or other managed care provider,
which agrees to pay for all or a portion of a customer's eligible prescription
purchases in exchange for reduced prescription rates. Although third party
payment plans provide a high volume of prescription drug sales, such sales
typically generate lower gross margins than other prescription drug sales due
to the cost containment efforts of these large third party payors and the
increasing competition among pharmacies for this business. During 1997, the
top 5 third party providers accounted for approximately 36% of CVS' pharmacy
sales. Any significant loss of third party provider business could have a
material adverse affect on the Company's business and results operations.
CVS' experience in providing solutions to managed care
providers, and its existing store base which affords easy access and
convenience to consumers, are factors that should contribute to the Company's
continued ability to attract and maintain third party business. In addition,
the Company's Rx2000 pharmacy computer system facilitates the management of
third party healthcare plans and enables CVS to provide managed care providers
with a level of information which the Company believes is unmatched by
competitors. By analyzing this data, CVS and its managed care partners are
able to evaluate treatment outcomes with an eye toward improving care and
containing costs. The Company's emphasis on customer service extends from the
expert advice and service that individual customers receive from CVS
pharmacists to the managed care portion of the Company's business, where
Managed Care Service Teams are responsible for ensuring the high level of
service that CVS' managed care partners receive.
The Company's pharmacy business also continues to benefit from
an "independent file buy" program, in which CVS purchases prescription files
from one or more independent pharmacies. During 1997, CVS purchased 190
prescription files, each containing an average weekly prescription count of
nearly 500, from independent pharmacies. The Company believes that
independent file buys are productive investments. In many cases, the
independent pharmacist will move to CVS, thereby providing continuity in the
pharmacist-patient relationship.
CVS is committed to being part of an integrated healthcare
approach that brings together industry participants such as physicians,
pharmaceutical companies, managed care providers and pharmacies in order to
provide patients with the best possible care at the lowest cost. The
Company's efforts to date have concentrated primarily on two main areas: (i)
the operation and expansion of PharmaCare, the Company's prescription benefit
management subsidiary, and (ii) the creation of strategic alliances with
healthcare partners.
PharmaCare was established in 1994 and offers managed care
providers a full range of prescription benefits management services, including
plan design and administration, formulary management, claims processing and
generic substitution, with a focus on providing integrated solutions to the
delivery of healthcare. PharmaCare has grown considerably and, at the end of
1997, provided managed healthcare services for approximately 5 million people
through a preferred national pharmacy network of approximately 40,000
pharmacies. In December 1997, PharmaCare merged with Revco's prescription
benefit management subsidiary, RxConnections, and assumed Revco's mail order
pharmacy operations, thereby strengthening and broadening PharmaCare's service
network.
One of the features that sets PharmaCare apart from other
prescription benefit management providers is its proprietary Clinical
Information Management System ("CIMS"). CIMS enables CVS pharmacists to work
more efficiently with physicians by facilitating communication and
information-sharing, with the objective of improving patient care and reducing
costs. Approximately 20,000 physicians are currently using CIMS, which began
with only 500 physicians in 1994. In addition, PharmaCare plays an increasing
role in healthcare management through integrated partnerships with several
large managed care providers.
CVS also pursues strategic alliances with healthcare partners
to develop products and services that create new opportunities for revenue and
profit growth. For example, CVS has entered into a joint venture called CVS
Health Connection, with Pfizer Health Solutions, Inc., a subsidiary of Pfizer,
Inc. Through this partnership, community health screening centers are
established in CVS store settings. The first CVS Health Connection center
opened in September 1997 in a New Bedford, Massachusetts CVS store. Harvard
Pilgrim Healthcare, one of the nation's largest and most progressive HMOs, has
contracted to offer health screening services to its members through this
center.
Effective Execution at Retail
The Company's front store merchandising strategies are designed
to improve customer satisfaction, selection and convenience, and establish CVS
stores as a destination for a growing number of front store merchandise
categories such as greeting cards, film and photo-finishing services, beauty
and cosmetics, seasonal merchandise, convenience foods and over-the-counter
drugs. CVS' 10,125 square-foot free-standing prototype stores have helped
enable the Company to improve store layout, convenience and selection
through the addition of product categories and the enhancement of
assortments within product categories. In addition, over the past several
years, the Company has made significant investments in systems and
technology to respond more effectively to customer needs, manage inventory
and control costs.
Through its point-of-sale scanning technology, CVS has
developed an advanced retail data base that has enabled the Company to
adopt a category management approach to front-end merchandising. Through
category management, CVS works in partnership with major suppliers to
refine and tailor assortments within product categories to the specific
purchasing preferences of customers within each market. Category
management enables the Company to analyze the impact of pricing, promotion
and mix on a category's sales and profitability and develop tactical
merchandising plans for each category by market.
The Company believes that effective category management
increases customer satisfaction and that its category management approach
has been a primary factor in its front store comparable sales gains and
improved gross margins. In addition, the Company believes that its ability
to satisfy customers through category management will be enhanced through
its implementation of supply chain management. Supply chain management is
designed to more effectively link CVS' stores and distribution centers with
suppliers to speed the delivery of merchandise to CVS stores in a manner
that both reduces out-of-stock positions and lowers CVS' investment in
inventory. The Company expects to see tangible benefits of its supply
chain management project beginning in 1998.
CVS strives to provide the highest levels of service to its
customers and partners. As a result, the Company devotes considerable time
and attention to people, systems and high service standards. The Company
places an emphasis on attracting and training friendly and helpful
associates to work both in CVS stores and throughout the CVS organization.
Each CVS store receives a formal customer service evaluation twice per
year, based on a mystery shopper program, customer letters and calls and
market research. The priority that CVS places on customer service extends
into the managed care portion of its business as well. In every market, a
Managed Care Service Team is responsible for ensuring that managed care
partners are receiving high levels of service. CVS pharmacists
consistently rank at the top of the industry on measurements of trust,
relationship-building and accessibility. This high level of service and
expertise has played a key role in enabling the growth of CVS' pharmacy
operations.
Expected Benefits of the Mergers
The chain drugstore industry has recently undergone rapid
consolidation. In this environment, CVS management believes that achieving
a critical mass of stores in appropriate geographic markets is essential to
competing effectively in the chain drugstore industry as well as with
alternative distribution channels.
Revco. The integration of Revco has proceeded according to
management's expectations. CVS achieved the anticipated costs savings of
$40 million in 1997 and management believes it is on track to achieve
annual cost savings of $100 million, beginning in 1998. See "Cautionary
Statement Regarding Forward-Looking Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Revco Integration Update".
Arbor. The Merger with Arbor presented an opportunity to
acquire a high-quality company in an industry where there is a diminishing
number of suitable acquisition candidates.
Importantly, the Merger with Arbor met each of CVS' three
criteria for strategic acquisitions: (i) acquisitions should be accretive to
earnings before one-time merger-related charges; (ii) acquisitions should
enable CVS to achieve a leadership position in new markets; and (iii) there
should exist upside potential to improve the operations and profitability of
an acquired business.
CVS expects that the Merger with Arbor will be accretive to
earnings (before one-time merger-related charges) in the first full year of
combined operations. CVS expects to achieve cost savings from the combined
operations of about $30 million annually, principally 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
Regarding Forward-Looking Statements".
The Merger with Arbor also provided CVS with a leading presence
in the Detroit metropolitan area, the nation's fourth largest drug retail
market, where CVS previously had no presence and is expected to help position
the Company to sustain long-term growth.
CVS management also believes that upside potential exists in
the ability for each organization to learn from applying the strengths of the
other. For example, CVS believes that CVS' expertise in cosmetics and the
depth of CVS' private label can be applied to Arbor stores, and that Arbor's
expertise in photo-finishing and in seasonal and general merchandise can be
applied to CVS stores.
Both CVS and Arbor have similar business philosophies focusing
on high-quality real estate, strong personnel and taking care of the customer.
Management believes that the compatibility between the parties in
philosophies, culture, store size and format and merchandise strategy should
facilitate a relatively smooth integration of the companies.
RECENT DEVELOPMENTS
On May 6, 1998 CVS announced results for the first quarter
ended March 28, 1998. Such financial results do not reflect the impact of the
Merger with Arbor.
Net sales for the first quarter of 1998 increased 5.5% to $3.3
billion from $3.2 billion during the same period last year. Same store sales
rose 7.3% for the quarter, while pharmacy same store sales increased 14.4%.
Pharmacy sales were approximately 57% of total sales for the quarter.
For the first quarter, net earnings increased 46.7% to $121.3
million, or $0.67 per diluted share, from $82.7 million, or $0.47 per diluted
share, during the same period last year. Excluding the after-tax effect of
the $31.0 million restructuring charge recorded in 1997, comparable first
quarter net earnings were $101.8 million, or $0.58 per diluted share in 1997.
Such results in the first quarter reflect strong operating
performance, particularly in light of the difficult comparisons due to the
shift in the Easter selling season and 1997's extended flu season. On a
comparable basis before the restructuring charge recorded in 1997, operating
profit increased 15% for the quarter. This was driven not only by sales
growth, but also by the significant improvement in selling, general and
administrative expenses.
USE OF PROCEEDS
CVS will not receive any proceeds from the sale of shares of
Common Stock or the Automatic Common Exchange Securities. All of the shares
of Common Stock (including shares deliverable upon exchange of the Automatic
Common Exchange Securities) are beneficially owned by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the NYSE under the symbol "CVS".
The table below sets forth, for the calendar quarters indicated, the reported
high and low sale prices of the Common Stock as reported on the NYSE Composite
Transaction Tape and the cash dividends declared by the Company per share of
Common Stock. In October 1996, the Company distributed 100% of the common
stock of Footstar, Inc. ("Footstar"), formerly a wholly owned subsidiary of
CVS, in the form of a stock dividend, to its stockholders. The stock prices
shown in the table are actual trading prices and do not reflect adjustments
for the when-issued price of Footstar prior to October 16, 1996 (the date on
which Footstar common stock commenced trading regular way on the NYSE).
<TABLE>
<CAPTION>
Market Price Cash
------------------- Dividends
High Low Declared
--------- ------- ---------
<S> <C> <C> <C>
1996
First Quarter.................................... $36 3/8 $27 1/4 $0.11
Second Quarter................................... 44 1/2 35 1/4 0.11
Third Quarter.................................... 46 36 5/8 0.11
Fourth Quarter................................... 44 3/4 36 3/8 0.11
1997
First Quarter.................................... $48 $39 $0.11
Second Quarter................................... 53 3/4 44 1/4 0.11
Third Quarter.................................... 60 50 7/8 0.11
Fourth Quarter................................... 70 54 5/8 0.11
1998
First Quarter.................................... 77 13/16 60 7/8 $0.11
Second Quarter (through May 6, 1998)............. 80 68 7/16 0.11
</TABLE>
On May 6, 1998, the last reported sale price of the Common
Stock was $69(3)/(8). As of March 28, 1998, there were approximately 9,900
holders of record of the Common Stock.
DIVIDEND POLICY
Future dividends on the Common Stock will depend upon the
Company's results of operations, financial condition, capital expenditure
program and other factors, some of which are beyond the Company's control.
There can be no assurance as to whether or when the Company's Board of
Directors will change the current policy regarding dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(In millions, except per share amounts and operating data)
The following table sets forth selected consolidated financial
data for CVS and its subsidiaries. The audited consolidated financial
statements of the Company for the three years ended December 31, 1997 have
been audited by KPMG Peat Marwick LLP, independent public accountants, whose
audit report is also incorporated herein by reference. The selected
historical consolidated financial data should be read in conjunction with
the consolidated financial statements and related notes thereto
incorporated herein by reference to the Company Form 10-K and are not
necessarily indicative of future results. The following selected
historical consolidated financial and operating data does not reflect the
Merger with Arbor.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Results of Operations:
Net sales...................................................... $9,763.4 $10,944.8 $12,738.2
Gross margin................................................... 2,746.9 3,052.1 3,439.7
Comparable gross margin(1)..................................... 2,746.9 3,052.1 3,514.7
Operating profit............................................... 230.7 540.8 199.8
Comparable operating profit(2)................................. 445.7 553.6 717.5
Earnings from continuing operations before extraordinary
item......................................................... 57.8 340.8 37.3
Comparable earnings from continuing operations before
extraordinary item(3)........................................ 184.7 275.2 380.1
Net earnings (loss)............................................ (572.8) 176.6 37.7
Net earnings (loss) available to common shareholders........... (589.8) 162.1 24.0
Dividends declared............................................. 184.3 68.6 82.2
Per Common Share:
Earnings from continuing operations before extraordinary
item:
Basic..................................................... $0.25 $1.97 $0.14
Diluted................................................... 0.25 1.92 0.14
Comparable earnings from continuing operations before
extraordinary item:(3)
Basic..................................................... 1.02 1.58 2.16
Diluted................................................... 1.02 1.55 2.12
Net earnings (loss):
Basic..................................................... (3.60) 0.98 0.14
Diluted................................................... (3.59) 0.98 0.14
Dividends...................................................... 1.52 0.44 0.44
Percentage of Net Sales:
Gross margin................................................... 28.1% 27.9% 27.0%
Comparable gross margin(1)..................................... 28.1 27.9 27.6
Operating profit............................................... 2.4 4.9 1.6
Comparable operating profit(2)................................. 4.6 5.1 5.6
Earnings from continuing operations before extraordinary
item......................................................... 0.6 3.1 0.3
Comparable earnings from continuing operations before
extraordinary item(3)........................................ 1.9 2.5 3.0
Net earnings (loss)............................................ (5.9) 1.6 0.3
Balance Sheet Data:
Net working capital............................................ $1,317.7 $1,406.1 $830.0
Total assets................................................... 6,335.6 5,693.7 5,636.9
Total long-term debt........................................... 1,027.6 1,184.3 272.6
Total shareholders' equity................................ 2,392.8 2,196.4 2,361.4
Operating Data:
Number of stores (at last period end)..................... 3,520 4,008 3,888
Same store sales increase(4).............................. 8.8% 8.7% 9.8%
Pharmacy same store sales increase(4)..................... 13.9% 13.3% 16.7%
<FN>
- ----------------------------
(1) Comparable gross margin excludes the pre-tax effect of the $75.0 million
($49.9 million after-tax) non-recurring charge in 1997 related to the
markdown of non-compatible Revco merchandise (the "Revco Inventory
Markdown").
(2) Comparable operating profit excludes the pre-tax effect of the following
non-recurring charges: (i) in 1997, the $411.7 million ($273.7 million
after-tax) CVS/Revco Restructuring Charge (as defined below) related
to the merger with Revco, the Revco Inventory Markdown discussed in
Note (1) above, and $31.0 million ($19.1 million after-tax) related to
the restructuring of Big B, Inc., (ii) in 1996, $12.8 million ($6.5
million after-tax) related to the failed merger of Rite Aid Corporation
and Revco and (iii) in 1995, $165.5 million ($97.7 million after-tax)
related to the CVS Strategic Restructuring Program and the early
adoption of Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" and $49.5 million ($29.1 million after-
tax) related to the Company changing its policy from capitalizing
internally developed software cost to expensing the costs as incurred,
outsourcing certain technology functions and retaining certain
employees until their respective job functions were transitioned. See
"--Management's Discussion and Analysis of Financial Condition and
Results of Operations".
(3) Comparable earnings from continuing operations before extraordinary item
and comparable earnings per common share from continuing operations
before extraordinary item exclude the after-tax effect of the charges
discussed in Note (1) and Note (2) above and the $121.4 million ($72.1
million after-tax) gain on sale of securities in 1996.
(4) Same store sales data is calculated based on the change in sales
commencing after a new store has been opened twelve months. The first
twelve months a store is open are not included in the same store
calculation. Relocations are included in same store sales. The
increase in same store sales for 1995 excludes the impact of Revco sales.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except where otherwise specified, the following discussion
reflects the Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company Form 10-K. As a result, the
following discussion does not reflect the results of operations of Arbor. In
addition, all references to the Notes to the consolidated financial statements
refer to the Company's consolidated financial statements and related notes
thereto incorporated herein by reference to the Company Form 10-K.
Merger with Arbor
The Merger with Arbor established CVS as the nation's top chain
drug retailer based on store count and prescriptions dispensed. The combined
company is expected to have revenues of approximately $15 billion in 1998 and
approximately 4,100 stores in 25 states and the District of Columbia, and is
expected to dispense approximately 12% of the retail prescriptions in the
United States. CVS acquired Arbor in an exchange of stock that will be
accounted for as a pooling of interests transaction, tax free to Arbor
shareholders. See "The Company--General".
In the second quarter of 1998, the Company expects to record
one-time merger-related charges of approximately $19 million relating to
transaction costs from the Merger with Arbor and approximately $75.0 million
(after-tax) relating to severance and other integration-related expenses that
will be incurred in connection with the Merger with Arbor.
Merger with Revco
On May 29, 1997, CVS completed a merger with Revco, pursuant
to which approximately 60.3 million shares of CVS Common Stock were issued in
exchange for all of the outstanding common stock of Revco. Each outstanding
share of Revco common stock was exchanged for 0.8842 of a share of CVS Common
Stock. In addition, outstanding Revco employee stock options were converted
at the same exchange ratio into options to purchase approximately 3.3 million
shares of CVS Common Stock.
Subsequent to the merger with Revco, and pursuant to a consent
decree with the Federal Trade Commission entered into in connection with the
merger with Revco, the Company divested 120 Revco stores, primarily in the
Richmond and Tidewater area of Virginia.
Accounting Treatment For the Merger with Revco
The merger with Revco, which constituted a tax-free
reorganization, has been accounted for as a pooling of interests under
Accounting Principles Board ("APB") Opinion No. 16, "Accounting For Business
Combinations". Accordingly, all prior period financial statements presented
have been restated to include the combined results of operations, financial
position and cash flows of Revco as if it had always been part of CVS.
Prior to the merger with Revco, Revco's fiscal year ended on
the Saturday closest to May 31. In recording the business combination, Revco's
consolidated financial statements for the fiscal years ended June 1, 1996 and
June 3, 1995 have been restated to reflect a December 31 year-end, to conform
with CVS' fiscal year-end.
Revco'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. The impact of the
restatement was to increase earnings from continuing operations by $13.5
million in 1996 and $11.9 million in 1995.
There were no material transactions between CVS and Revco prior
to the merger with Revco. Certain reclassifications have been made to Revco's
historical consolidated financial statements to conform to CVS' presentation.
In accordance with Emerging Issues Task Force ("EITF") Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)", the Company recorded a charge to operating expenses of $411.7
million in the second quarter of 1997 for direct and other merger-related
costs pertaining to the merger transaction and certain restructuring
activities (the "CVS/Revco Restructuring Charge").
Following is a summary of the significant components of the
CVS/Revco Restructuring Charge:
<TABLE>
<CAPTION>
CVS/Revco
Restructuring Utilized Balance at
Charge in 1997 12/31/97
------------- ---------- ----------
(in millions)
<S> <C> <C> <C>
Merger transaction costs.... $35.0 $32.1 $2.9
Restructuring costs:
Employee severance....... 89.8 37.4 52.4
Exit costs............... 286.9 126.1 160.8
------ ------ ------
$411.7 $195.6 $216.1
</TABLE> ====== ====== ======
Merger transaction costs related to the merger with Revco
primarily include fees for investment bankers, attorneys, accountants,
financial printers and other related charges. Restructuring activities
primarily relate to the consolidation of administrative functions. These
actions resulted in the reduction of approximately 1,000 employees, primarily
in Revco's Twinsburg, Ohio headquarters, and will include the consolidation and
closure of certain facilities. Exit costs primarily relate to activities such
as the cancellation of lease agreements, closing of certain facilities and the
write-down of unutilized fixed assets.
Asset write-offs included in the above charge totaled $53.7
million. The balance of the pre-tax charge, $358.0 million, will require cash
outlays of which $164.8 million had been incurred as of December 31, 1997.
The remaining balance, $193.2 million, which primarily includes
non-cancellable operating lease commitments and severance, is expected to be
incurred in 1998 and beyond.
The Company also recorded a $75 million charge to cost of goods
sold in the second quarter of 1997 to reflect markdowns on non-compatible
Revco merchandise.
See Note 1 to the consolidated financial statements for further
information about the merger with Revco.
Revco Integration Update
CVS is pleased to report that the integration of Revco is
proceeding according to expectations. Specifically:
* CVS has completed the conversion of all of Revco's back-end systems to
CVS' back-end systems, enabling all merchandising and purchasing
decisions to be made from CVS' headquarters.
* CVS has completed the conversion of all of Revco's store systems, both
point-of-sale and pharmacy, to CVS' store systems.
* CVS has remodeled approximately 700 Revco stores to "look and feel" like
a CVS store. The Company expects to have the remaining Revco stores
remodeled before the end of 1998.
* With the exception of cosmetics, CVS has converted the inventory in all
Revco stores to the CVS merchandise mix. The Company expects to
complete the conversion of cosmetics in the remodeled Revco stores
during the first half of 1998, following the receipt of tailored
cosmetics fixtures from vendors. The Company expects to complete the
remaining Revco stores as they are remodeled during 1998.
* The former Revco headquarters in Twinsburg, Ohio has been closed.
* CVS achieved the anticipated costs savings of $40 million in 1997 and
believes it is on track to achieve annual cost savings of $100 million,
beginning in 1998. The achievement of future costs savings is subject
to the uncertainties discussed in the "Cautionary Statement Concerning
Forward Looking Statements" section above.
Acquisition of Big B, Inc.
In November 1996, the Company completed a cash tender offer
(the "Offer") for the common stock of Big B, Inc. ("Big B") resulting in the
Company owning approximately 85% of Big B's common stock. In December 1996,
the Company completed a second step acquisition in which all of the remaining
Big B common stock was acquired at the same cash price paid in the Offer. The
aggregate transaction value, including the assumption of $49.3 million of Big
B debt, was $423.2 million.
The acquisition of Big B was accounted for as a purchase
business combination under APB Opinion No. 16. The purchase price was
allocated to assets acquired and liabilities assumed based on estimated fair
values at the date of acquisition. This resulted in an excess of purchase
price over net assets acquired ("Goodwill") of approximately $249 million,
which is being amortized on a straight-line basis over 40 years. Big B's
results of operations have been consolidated with the Company's results of
operations beginning November 16, 1996.
See Note 5 to the consolidated financial statements for further
information about the Big B acquisition.
CVS Strategic Restructuring Program
In November 1997, the Company completed the final phase of its
comprehensive strategic restructuring plan (the "CVS Strategic Restructuring
Program"), first announced in October 1995 and subsequently refined in May
1996 and June 1997. The restructuring plan included, among other things:
* The sale of four operating businesses (completed during 1995 and 1996).
* The spin-off of Footstar, Inc. ("Footstar") (completed in October 1996).
* The initial public offering of 67.5% of the shares of common stock of
Linens 'n Things, Inc. (completed in December 1996).
* The sale of Bob's Stores (completed in November 1997).
* The elimination of certain corporate overhead costs (completed during
1995 and 1996).
In June 1997, the Company sold its remaining 32.5% ownership
interest in Linens 'n Things, Inc.
The CVS Strategic Restructuring Program was completed without
significant changes to the plan approved by the Board of Directors. As part
of completing this program, the Company recorded, as a component of
discontinued operations, a pre-tax charge of approximately $35 million during
the second quarter of 1997 to finalize certain liabilities accrued for in the
1996 Restructuring Charge (as defined below).
See Note 3 to the consolidated financial statements for further
information about the CVS Strategic Restructuring Program.
Results of Operations
The following discussion should be read in conjunction with the
Company's consolidated financial statements as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997
which are incorporated herein by reference to the Company 10-K.
As discussed above, the merger with Revco 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.
The results of operations of the Company's former footwear,
apparel and toys and home furnishings segments have been classified as
discontinued operations in the accompanying consolidated condensed statements
of operations for all periods presented. See " --CVS Strategic Restructuring
Program" above and Note 3 to the consolidated financial statements for further
information. The following discussion, therefore, focuses primarily on
continuing operations.
1997 versus 1996
Net sales for 1997 increased $1.8 billion or 16.4% to $12.7
billion, compared to $10.9 billion in 1996. Same store sales rose 9.8%, with
pharmacy same store sales increasing 16.7%. Pharmacy sales were 54% of total
sales in 1997, compared to 51% of total sales in 1996.
The growth in front store sales was primarily driven by
increases in categories such as greeting cards, film and photofinishing,
beauty and cosmetics, convenience foods, private label and seasonal
merchandise. Growth in pharmacy sales was driven primarily by (i) increased
penetration into managed care markets, (ii) the purchase of prescription files
from independent pharmacies and (iii) favorable trends, including an aging
American population, greater responsibility being borne by Americans for their
healthcare, an increasing demand for retail formats that provide easy access
and convenience, discovery of new and better drug therapies, and the need for
cost effective healthcare solutions (collectively, the "Pharmacy Sales
Factors"). Both front store and pharmacy sales were positively impacted by the
Big B acquisition effective November 16, 1996. Excluding the positive impact
of the Big B acquisition, net sales increased 11.1% in 1997, compared to 1996.
Gross margin for 1997 increased $387.6 million or 12.7% to $3.4
billion, compared to $3.1 billion in 1996. During the second quarter of 1997,
the Company recorded a charge of $75.0 million to cost of goods sold to
reflect markdowns on non-compatible Revco merchandise (the "Revco Inventory
Markdown"). Excluding the effect of the Revco Inventory Markdown, gross
margin increased $462.6 million or 15.2% to $3.5 billion.
Gross margin as a percentage of net sales for 1997 was 27.0%,
compared to 27.9% of net sales in 1996. Excluding the effect of the Revco
Inventory Markdown, gross margin as a percentage of net sales was 27.6% for
1997. The decline in comparable gross margin as a percentage of net sales was
primarily due to the continued increase in lower gross margin third party
prescription sales and the increase in pharmacy sales as a percentage of total
sales (collectively, the "Pharmacy 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 1997 were $3.2 billion or 25.4% of
net sales, compared to $2.5 billion or 22.9% of net sales in 1996. In order
to properly evaluate the Company's total operating expenses in these periods,
it is important to note the following non-recurring charges:
* During the second quarter of 1997, the Company recorded the CVS/Revco
Restructuring Charge. For further information about this charge, see
"--Accounting Treatment For the Merger with Revco" above.
* During the first quarter of 1997, the Company recorded a $31.0 million
charge for certain non-capitalizable costs associated with the
restructuring of Big B, which the Company acquired in 1996 (the "Big
B Restructuring Charge"). The significant components of this charge
included: $5.3 million for store, distribution and system conversion
costs, $18.7 million for store closing costs and $7.0 million for
duplicate headquarters and administration costs. In accordance with
EITF Issue No. 94-3, this charge includes accrued liabilities related
to certain exit plans for identified stores and duplicate corporate
facilities, such as the cancellation of lease agreements and the
write-down of unutilized fixed assets. These exit plans do not
benefit the future activities of the retained stores or corporate
facilities.
* During the second quarter of 1996, the Company recorded a $12.8 million
charge upon Rite Aid Corporation's announcement that it had withdrawn
its tender offer to acquire Revco (the "Rite Aid Charge").
Excluding the CVS/Revco Restructuring Charge and the Big B
Restructuring Charge in 1997 and the Rite Aid Charge in 1996, comparable
operating expenses for 1997 were $2.8 billion or 22.0% of net sales, compared
to $2.5 billion or 22.8% of net sales in 1996. The improvement in comparable
operating expenses as a percentage of net sales was primarily due to the
benefits derived from: (i) sales in the Company's existing store base growing
at a faster rate than operating costs, (ii) the CVS Strategic Restructuring
Program, (iii) the consolidation of CVS' and Revco's administrative functions,
(iv) store operating improvements and (v) key technology investments such as
the Company's Rx2000 Pharmacy System, CVS Rapid Refill System, Pharmacy Data
Warehouse, Point-of-Sale System, Retail Data Warehouse and Field Management
System.
Operating profit for 1997 decreased $341.0 million to $199.8
million, compared to $540.8 million in 1996. Excluding the effect of the Revco
Inventory Markdown, the CVS/Revco Restructuring Charge and the Big B
Restructuring Charge in 1997 and the Rite Aid Charge in 1996 (collectively,
the "Noted Charges"), comparable operating profit increased $163.9 million or
29.6% to $717.5 million in 1997, compared to $553.6 million in 1996.
Comparable operating profit as a percentage of net sales was 5.6% for 1997,
compared to 5.1% of net sales in 1996.
Other (expense) income, net for 1997 amounted to an expense of
$44.8 million, compared to income of $51.3 in 1996. The decrease in 1997 was
primarily due to the $121.4 million gain that was realized during 1996 upon
the sale of certain equity securities that were received as part of the
proceeds from the sale of Marshalls to The TJX Companies, Inc. (the "TJX
Gain"). The effect of the TJX Gain in 1996 was offset, in part, by a $30.9
million decrease in net interest expense in 1997. The decrease in net
interest expense was primarily due to the lower average borrowing levels that
resulted primarily from the Revco Debt Retirement. For further discussion,
see "--Revco Debt Retirement" below.
Earnings from continuing operations before extraordinary item
for 1997 decreased $303.5 million to $37.3 million or $0.14 per diluted share,
compared to $340.8 million or $1.92 per diluted share in 1996. Excluding the
effect of the Noted Charges and the TJX Gain, comparable earnings from
continuing operations before extraordinary item increased $104.8 million or
38.1% to $380.1 million, or $2.12 per diluted share in 1997, compared to
$275.2 million, or $1.55 per diluted share in 1996.
Discontinued operations. During the second quarter of 1997, the
Company sold its remaining investment in Linens 'n Things, Inc. for total
proceeds of approximately $147 million, which resulted in a pre-tax gain
of approximately $65 million. This gain has been reflected in discontinued
operations. In conjunction with recording this gain, the Company recorded
a pre-tax charge of approximately $35 million in discontinued operations to
finalize certain liabilities accrued for as part of the CVS Strategic
Restructuring Program. During the second quarter of 1996, the Company
recorded, as a component of discontinued operations, a pre-tax charge of
$235.0 million (the "1996 Restructuring Charge") after receiving approval
from its Board of Directors to implement (i) a formal plan to separate
Linens 'n Things, Inc. and Bob's Stores from the Company and (ii) a formal
plan to convert 80 - 100 Thom McAn's stores to the Footaction store format
and to sell or close the remaining Thom McAn stores, and thereby exit the
Thom McAn business by mid-1997. See "--CVS Strategic Restructuring
Program" above and Note 3 to the consolidated financial statements for
further information about the CVS Strategic Restructuring Program.
Extraordinary item represents a $17.1 million after-tax charge
that was recorded in the second quarter of 1997 as a result of the Revco Debt
Retirement. This charge includes early retirement premiums and the write-off
of unamortized finance costs. For further discussion, see "--Revco Debt
Retirement" below.
Net earnings for 1997 were $37.7 million, or $0.14 per diluted
share, compared to $176.6 million or $0.98 per diluted share, in 1996.
1996 versus 1995
Net sales for 1996 increased $1.2 billion or 12.1% to $10.9
billion, compared to $9.8 billion in 1995. Same store sales rose 8.7%, with
pharmacy same store sales increasing 13.3%. Pharmacy sales were 51% of total
sales in 1996 and 1995.
The growth in front store sales was primarily driven by
increases in categories such as greeting cards, film and photo-finishing,
beauty and cosmetics, convenience foods, private label and seasonal
merchandise. Growth in pharmacy sales was primarily driven by the Pharmacy
Sales Factors defined in "--1997 versus 1996" above.
Gross margin for 1996 increased $305.2 million or 11.1% to $3.1
billion, compared to $2.7 billion in 1995.
Gross margin as a percentage of net sales for 1996 was 27.9%,
compared to 28.1% of net sales in 1995. The decline in 1996 was primarily due
to the Pharmacy Gross Margin Factors defined in "--1997 versus 1996" above.
Total operating expenses for 1996 were $2.5 billion or 22.9% of
net sales, compared to $2.5 billion or 25.8% of net sales in 1995. In order
to properly evaluate the Company's total operating expenses in these periods,
it is important to note the following non-recurring charges:
* During the second quarter of 1996, the Company recorded the $12.8
million Rite Aid Charge.
* During the fourth quarter of 1995, the Company recorded a pre-tax charge
of $872.0 million when its Board of Directors approved the CVS Strategic
Restructuring Program (the "1995 Restructuring Charge"). $160.6 million
of this charge pertained to continuing operations. The amount recorded
in continuing operations primarily includes costs associated with (i)
exiting certain geographic markets, (ii) closing duplicate warehouse
facilities and (iii) closing the Company's corporate headquarters in
Rye, New York. These costs primarily include asset write-offs, closed
store and warehouse lease liabilities and employee severance. The
balance of the charge, $711.4 million, was reflected as a component of
discontinued operations. See "--CVS Strategic Restructuring Program"
above and Note 3 to the consolidated financial statements for further
information about the CVS Strategic Restructuring Program.
* During the fourth quarter of 1995, the Company changed its policy from
capitalizing internally developed software costs to expensing the costs
as incurred and recorded a charge of $74.5 million (the "Accounting
Change"), $37.8 million of which pertained to continuing operations.
The effect of the change in accounting principle has been treated as a
change in accounting principle that is inseparable from the effect of
the change in accounting estimate. See "--Accounting Changes" below and
Note 2 to the consolidated financial statements for further information
about this charge.
* During the fourth quarter of 1995, the Company recorded, as a component
of operating expenses, the following non-recurring charges: (i) $11.6
million related to outsourcing certain technology functions and
retaining certain employees until their respective job functions were
transitioned, and (ii) $5.0 million related to the write-down of certain
fixed and intangible assets as a result of the Company's early adoption
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (collectively, the "Special
Charges"). See "--Accounting Changes" below and Note 2 to the
consolidated financial statements for further information about these
charges.
Excluding the Rite Aid Charge in 1996 and the 1995
Restructuring Charge, the Accounting Change and the Special Charges in 1995,
comparable operating expenses for 1996 were $2.5 billion or 22.8% of net
sales, compared to $2.3 billion or 23.6% of net sales in 1995. The
improvement in comparable operating expenses as a percentage of net sales was
primarily due to the benefits derived from: (i) sales in the Company's
existing store base growing at a faster rate than operating costs, (ii) the
CVS Strategic Restructuring Program, (iii) store operating improvements and
(iv) key technology investments.
Operating profit for 1996 increased $310.1 million to $540.8
million, compared to $230.7 million in 1995. Excluding the Rite Aid Charge in
1996 and the 1995 Restructuring Charge, the Accounting Change and the Special
Charges in 1995, comparable operating profit increased $107.9 million or 24.2%
to $553.6 million in 1996, compared to $445.7 million in 1995. Comparable
operating profit as a percentage of net sales was 5.1% for 1996, compared to
4.6% of net sales in 1995.
Other (expense) income, net for 1996 amounted to income of
$51.3 million, compared to an expense of $114.5 million in 1995. This
increase was primarily due to the TJX Gain in 1996. In addition, net interest
expense decreased $38.8 million in 1996 to $75.7 million, compared to $114.5
million in 1995. The decrease in net interest expense was primarily due to
lower average borrowing levels.
Earnings from continuing operations for 1996 increased $283.0
million to $340.8 million, compared to $57.8 million in 1995. Excluding the
Rite Aid Charge and the TJX Gain in 1996 and the 1995 Restructuring Charge,
the Accounting Change and the Special Charges in 1995, comparable earnings
from continuing operations increased $90.5 million or 49.0% to $275.2 million,
or $1.55 per diluted share in 1996, compared to $184.7 million, or $1.02 per
diluted share in 1995.
Discontinued operations. During the second quarter of 1996, the
Company recorded the 1996 Restructuring Charge. During the fourth quarter of
1995, the Company recorded the 1995 Restructuring Charge. See "--CVS
Strategic Restructuring Program" above and Note 3 to the consolidated financial
statements for further information.
Net earnings for 1996 were $176.6 million or $0.98 per diluted
share, compared to a net loss of $572.8 million or $3.59 per diluted share in
1995.
Seasonality
The Company's business normally generates higher revenue during
the holiday season in its fourth quarter. In each of the fiscal years ended
December 31, 1997, 1996 and 1995, the fourth quarter accounted for
approximately 26%, 28% and 28% of the Company's net sales, respectively.
Liquidity & Capital Resources
The following discussion should be read in conjunction with the
Company's consolidated financial statements as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997.
The Company's financial condition remained strong at the end of
1997. Management's aggressive focus on working capital combined with the
proceeds received from: (i) the sale of the Company's 32.5% ownership interest
in Linens 'n Things, Inc., (ii) the sale of Bob's Stores, (iii) the sale of
certain Revco stores, and (iv) the sale of certain notes receivable that were
received as a portion of the proceeds from the sale of certain businesses,
allowed the Company to reduce its total debt position by approximately $422.4
million during the year to $779.8 million at December 31, 1997.
Revco Debt Retirement
Following the completion of the merger with Revco:
* On May 30, 1997, the Company repaid $600 million of bank debt
outstanding under Revco's revolving credit facility.
* On June 30, 1997, the Company redeemed all $144.9 million aggregate
principal amount of the Revco 10.125% Senior Notes at 105% of the
principal amount plus accrued interest.
* In July 1997, the Company completed a tender offer pursuant to
which it repurchased $120.8 million of the $140.0 million
aggregate principal amount of the Revco 9.125% Senior Notes at an
average price of 104.61% of the principal amount plus accrued
interest.
As a result of above (collectively, the "Revco Debt
Retirement"), the Company recorded an after tax-charge of $17.1 million
during the second quarter of 1997. This charge, which includes early
retirement premiums and the write off of unamortized finance costs, has
been classified as an extraordinary item in the accompanying consolidated
statements of operations.
The Revco Debt Retirement was financed with cash on hand and
borrowings under the Company's commercial paper program. See Note 7 to the
consolidated financial statements for further information about the Revco Debt
Retirement.
On January 15, 1998, the Company redeemed the remaining $19.2
million aggregate principal amount of the Revco 9.125% Senior Notes at 103% of
principal plus accrued interest.
Goodwill
In connection with certain acquisitions which were accounted
for as purchase business combinations under APB Opinion No. 16, the Company
recorded goodwill in the amount of $776.9 million, representing the excess of
the cost of the net assets acquired over their fair value. Goodwill is being
amortized on a straight-line basis generally over periods of 40 years. At
December 31, 1997, the unamortized portion of goodwill totaled $711.3
million.
Although goodwill amortization has no impact on the Company's
cash flows, the impact on annual earnings is approximately $19.4 million.
This amount is included in depreciation and amortization.
The Company evaluates goodwill for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. In completing its evaluation, the Company compares estimated
future cash flows to the carrying amount of the goodwill. If the carrying
amount of the goodwill exceeds the expected future cash flows, the Company
considers the goodwill to be impaired and records an impairment loss. Based
on the Company's analysis of future cash flows, management believes that
goodwill is not presently impaired.
Sources of Liquidity
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 (the "Credit Facility"). The
Credit Facility contains customary financial and operating covenants.
Management believes that the restrictions contained in these covenants do not
materially affect the Company's financial flexibility.
The Company can also obtain up to $220 million of short-term
financing through various uncommitted lines of credit.
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 expenditure, debt service requirements and future cash
outlays associated with the merger with Revco and the Merger with Arbor.
Year 2000
Since 1995, the Company has been actively addressing the nature
and impact of issues presented by the Year 2000. Accordingly, 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 could have a material impact on the Company.
Capital Expenditures
Capital expenditures totaled $312.1 million, $297.5 million and
$528.9 million in 1997, 1996 and 1995, respectively. These expenditures were
primarily for: (i) new stores, (ii) improvements to existing stores, (iii)
store equipment, (iv) information systems, (v) distribution and office
facilities and (vi) remodeling completed in connection with the Revco
integration.
During 1997, the Company opened 287 new stores (including
relocations of existing stores) and expects to open approximately 300 new
stores (including relocations) in 1998. Relocations involve moving existing
in-line shopping center stores to larger freestanding locations.
Historically, relocating stores to more convenient locations and larger sizes
has generated significant improvements in customer count and revenues, driven
largely by increased sales of higher margin front store merchandise.
Management believes that relocations offer a significant opportunity for
future growth, as less than 20% of the Company's existing stores are
freestanding. However, it is unknown at this time whether such relocations in
existing or new markets served by the Company will realize the same results as
those historically achieved.
Revised Dividend
On January 10, 1996, the Board of Director approved a reduction
in the Company's quarterly dividend from $0.38 per common share to $0.11 per
common share (the "Revised Dividend"). Management believes that the Revised
Dividend is consistent with chain drugstore industry practice and the
Company's anticipated capital requirements. Future dividends will be at the
discretion of the Company's Board of Directors and subject to future operating
performance and financial condition.
Certain Tax Matters
As of December 31, 1997, the Company had federal net operating
loss carryforwards ("NOLs") of approximately $33.9 million expiring in the
years 2003 through 2009.
Substantially all of these NOLs are attributable to the time
period prior to Revco's emergence from Chapter 11. As discussed in Note 2 to
the consolidated financial statements, under Fresh Start Reporting, the
benefits realized from these NOLs should reduce Reorganization Goodwill (as
defined in such Note 2). Accordingly, the tax benefit of such NOLs utilized
during the three years ended December 31, 1997 (approximately $69.4 million,
$15.3 million and $18.8 million for 1997, 1996 and 1995, respectively), have
not been included in the computation of the Company's income tax provision,
but instead have been reflected as reductions of Reorganization Goodwill.
When realized, the tax benefit of the remaining NOL carryforward will also
reduce Reorganization Goodwill.
Accounting Changes
During the fourth quarter of 1997, the Company was required to
retroactively adopt SFAS No. 128, "Earnings Per Share". This statement
requires companies with complex capital structures to present basic and
diluted earnings per common share in lieu of previously reported primary and
fully diluted earnings per common share. See Notes 2 and 18 to the
consolidated financial statements for further information about SFAS No. 128.
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation". While SFAS No. 123 established
financial accounting and reporting standards for stock-based employee
compensation plans using a fair value method of accounting, it allows
companies to continue to measure compensation using the intrinsic value
method of accounting as prescribed in APB Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company will continue to use its present
APB opinion No. 25 accounting treatment for stock based compensation. See
Notes 2 and 11 to the consolidated financial statements for further
information about SFAS No. 123.
Effective October 1, 1995, the Company early adopted SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and recorded a pre-tax asset impairment charge of
$110.4 million ($5.0 million of which pertained to continuing operations) in
connection with the write-down of certain fixed and intangible assets. The
above charge resulted when the Company began identifying and measuring
impairment at a lower level under SFAS No. 121 than under its previous
accounting policy. Under the Company's previous accounting policy, long-
lived assets were evaluated as a group for impairment at the operating
business level if the operating business was either incurring operating
losses or was expecting to incur operating losses in the future. Since the
expected future cash flows measured at the operating business level were in
excess of the carrying value of the related assets, no previous impairment
losses were recorded.
During the fourth quarter of 1995, the Company changed its
policy from capitalizing internally developed software costs to expensing the
costs as incurred and recorded a charge of $74.5 million ($37.8 million of
which pertained to continuing operations). The effect of the change in
accounting principle has been treated as a change in accounting principle that
is inseparable from the effect of the change in accounting estimate. As a
result, the entire amount has been treated as a change in accounting estimate.
The effect of this charge was to reduce net earnings by $45.8 million, or
$0.28 per diluted common share in 1995.
Cautionary Statement Concerning Forward-Looking Statements
See "Cautionary Statement Regarding Forward-Looking Statements"
above.
SELLING STOCKHOLDERS
The shares of Common Stock offered in the Common Stock offering
are being offered for the account of Eugene Applebaum, the Chairman of the
Board, President and Chief Executive Officer of Arbor prior to the Merger with
Arbor, his wife, Marcia Applebaum, and certain trusts for the benefit of their
children or grandchildren and the Eugene Applebaum Family Foundation
(collectively, the "Selling Stockholders"). The shares of Common Stock for
which Automatic Common Exchange Securities may be exchanged, or cash in lieu
thereof, will be delivered to the Trust by the Selling Stockholders pursuant
to a forward purchase contract between the Trust and the Selling Stockholders.
Mr. Applebaum has served as a member of CVS' Board of Directors
since April 1, 1998, following the consummation of the Merger with Arbor on
March 31, 1998. Since March 31, 1998, he has also served as a consultant to
CVS with respect to among other things, transitional issues and Michigan and
Toledo metropolitan real estate matters, pursuant to a Consulting Agreement
dated February 8, 1998 by and between himself and CVS. Prior to that time,
neither Mr. Applebaum nor any of the other Selling Stockholders had any
relationship with the Company.
The following table sets forth certain information for the
Selling Stockholders on a combined basis with respect to (i) such Selling
Stockholders' beneficial ownership of the Common Stock prior to the offering
made hereby and in the offering of the Automatic Common Exchange Securities,
(ii) the number of shares being offered for sale hereby, and (iii) the number
of shares and the percentage of outstanding shares of the Common Stock to be
beneficially owned by the Selling Stockholders after the offering referred to
in clause (ii) above. The following table does not reflect that up to
shares of Common Stock may be delivered by the Selling Stockholders to the CVS
Automatic Common Exchange Security Trust pursuant to the forward purchase
contract referenced above.
<TABLE>
<CAPTION>
Shares of Shares of
Common Stock Common Stock
Beneficially to be Beneficially
Name of Owned Before Shares Owned After
Selling Sale Under This to be Sale Under This
Stockholder Prospectus(2)(4) Sold(3) Prospectus(3)(4)
----------- -------------------------------------- -------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Number Percentage Number Percentage
------ ---------- ------ ----------
Eugene Applebaum
Living Trust............. 3,935,309 2.1%
Eugene Applebaum.......... 1,174,099 (1) *
Eugene Applebaum
GST Trust................ 238,650 *
The Eugene
Applebaum Family
Foundation............... 236,359 *
Trust for the benefit
of Lisa S.
Applebaum................ 157,061 *
Trust for the benefit
of Pamela A.
Applebaum................ 157,061 *
Marcia C.
Applebaum................ 84,571 *
Eugene Applebaum
401(K) Plan Stock
Account.................. 28,950 *
Eugene Applebaum 21,479 *
--------- ----- -------- ------ ----------
IRA Account............... 6,033,539 3.1%
========= ===== ======== ====== ==========
<FN>
- -----------------
* Less than 1%
(1) Represents 1,149,099 shares of Common Stock issuable upon exercise of
CVS stock options held by such Selling Stockholder which were formerly
Arbor stock options plus 25,000 shares of Common Stock issuable upon
exercise of CVS stock options issued pursuant to the Consulting
Agreement.
(2) Information is as of March 31, 1998.
(3) Assumes the Underwriters' over-allotment option is not exercised.
(4) The percentage set forth above is calculated on the basis of the number
of shares of Common Stock outstanding on March 31, 1998, plus, all
stock options granted to Mr. Applebaum under the Company's stock
option plans that are exercisable within 60 days following the date
hereof.
</FN>
</TABLE>
In connection with the Merger with Arbor, the Company and the
Selling Stockholders or a predecessor-in-interest, (other than the
Foundation) entered into a Registration Rights Agreement dated as of March
31, 1998 (the "Registration Rights Agreement"), a copy of which is included
as an exhibit to the Registration Statement of which this Prospectus is a
part. Pursuant to the Registration Rights Agreement, CVS agreed to use its
reasonable best efforts to cause a registration statement relating to the
shares acquired by the Selling Stockholders in the Merger with Arbor (each
a "Selling Stockholder Registration Statement") to be declared effective
within 60 days after receipt of a written request for registration from the
Selling Stockholders (or 20 days in the case of the first such request) and
generally to keep such Selling Stockholder Registration Statement
continuously effective until the earliest of 30 days (subject to certain
extensions) after the date such Selling Stockholder Registration Statement
is declared effective, such time as all securities covered by the
Registration Rights Agreement have been sold or disposed of thereunder and
such time as all securities subject to the Registration Rights Agreement
shall cease to be so subject. Pursuant to the Registration Rights
Agreement, the Selling Stockholders may request registration on no more
than three occasions and may make such a request only once in any six-month
period. Notwithstanding the foregoing, CVS is not required to effect a
registration unless the aggregate value of the shares requested to be
registered is equal to or more than $100 million. The method of
disposition requested by the Selling Stockholders in connection with any
demand registration may not be an offering on a delayed or continuous basis
pursuant to Rule 415 without the Company's prior written consent. On April
20, 1998, CVS and Mr. Applebaum, on behalf of himself and the other
Selling Stockholders, entered into Amendment No. 1 to the Registration
Rights Agreement pursuant to which, inter alia, (1) the parties agreed to
waive the Company's obligation to file with the SEC a registration
statement in response to an initial demand for registration request that
the Selling Stockholder's delivered to the Company in March 1998 but
subsequently revoked (the "March 1998 Demand"), (2) CVS acknowledged that
the March 1998 Demand would not be treated as a Demand Request, as such
term is defined in the Registration Rights Agreement, for purposes of the
such agreement and (3) the parties agreed to amend the time by which the
Company must prepare and file a registration statement in response to the
demand request next succeeding the March 1998 Demand. CVS has agreed to
pay any and all expenses incidental to performance of or compliance with
any registration of shares of Common Stock received by the Selling
Stockholders in connection with the Merger with Arbor, including, without
limitation, (i) the fees, disbursements and expenses of CVS' counsel and
accountants (including in connection with the delivery of opinions and/or
comfort letters); (ii) all expenses, including filing fees, in connection
with the preparation, printing and filling of one or more registration
statements; (iii) the cost of printing or producing any agreements among
underwriters, underwriting agreements, and blue sky or legal investment
memoranda; (iv) the filing fees incidental to securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the
sale of the securities to be disposed of; (v) transfer agents' and
registrars' fees and expenses in connection with such offering; (vi) all
security engraving and security printing expenses; (vii) all fees and
expenses payable in connection with the listing of the shares on any
securities exchange or automated interdealer quotation system on which the
Common Stock is then listed; and (viii) all reasonable fees and expenses of
one legal counsel for the Selling Stockholders in connection with each
demand registration, which legal counsel shall be selected by Selling
Stockholders owning a majority of the shares then being registered;
provided that registration expenses shall exclude (w) any expenses relating
to any action taken by CVS in connection with the public sale of securities
pursuant to a derivatives transaction with respect to the Selling
Stockholders' shares over and above the expenses that would have been
incurred by CVS in connection with an offering of such shares, (x) all
underwriting discounts and commissions, selling or placement agent or
broker fees and commissions, and transfer taxes, if any, in connection with
the sale of any securities, (y) the fees and expenses of counsel for any
Selling Stockholder (other than pursuant to clause (viii)) and (z) all
costs and expenses of CVS incurred in connection with the marketing of the
shares in connection with any underwritten offering, including without
limitation any roadshow expenses.
DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the capital stock of CVS set forth
below does not purport to be complete and is qualified by reference to the
certificate of incorporation and bylaws of CVS (the "CVS Charter" and the "CVS
Bylaws", respectively).
Authorized Capital Stock
Under the CVS Charter, CVS' authorized capital stock consists
of 300,000,000 shares of Common Stock, 120,619 shares of Cumulative Preferred
Stock, par value $0.01 per share (the "CVS Preferred Stock"), and 50,000,000
shares of Preference Stock, par value $1 per share (the "CVS Preference
Stock") (the CVS Preferred Stock and CVS Preference Stock being referred to
herein collectively as "Preferred Stock"). CVS has proposed to raise the
number of authorized shares of Common Stock to 1,000,000,000. The proposal
will be voted on by the Company's stockholders of record on March 24, 1998 at
the annual stockholders meeting to be held on May 13, 1998.
Common Stock
On March 31, 1998, there were 191,601,121 shares of Common
Stock outstanding (excluding 5,633,118 treasury shares), including 18,914,347
shares of Common Stock issued in connection with the Merger with Arbor. The
holders of Common Stock are entitled to receive ratably, from funds legally
available for the payment thereof, dividends when and as declared by
resolution of the Board of Directors, subject to any preferential dividend
rights granted to the holders of any outstanding Preferred Stock. In the
event of liquidation, each share of Common Stock is entitled to share pro rata
in any distribution of CVS' assets after payment or providing for the payment
of liabilities and the liquidation preference of any outstanding Preferred
Stock. Each holder of Common Stock is entitled to one vote for each share of
Common Stock held of record on the applicable record date on all matters
submitted to a vote of stockholders, including the election of directors. In
addition, holders of Series One ESOP Convertible Preference Stock, $1 par
value, of CVS ("CVS ESOP Preference Stock") are entitled to vote on all
matters submitted to a vote of holders of Common Stock, voting together with
the Common Stock as a single class. Each share of CVS ESOP Preference Stock
is entitled to the number of votes equal to the number of shares of Common
Stock into which such share of CVS ESOP Preference Stock could be converted,
rounded to the nearest tenth on the record date for the applicable meeting,
which is currently 1.2 votes (subject to adjustment in the case of certain
dilutive events).
Holders of Common Stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other securities
and there are no conversion rights or redemption rights or sinking fund
provisions with respect to the Common Stock. All outstanding shares of Common
Stock are duly authorized, validly issued, fully paid and nonassessable.
CVS Preferred Stock and CVS Preference Stock
Prior to and upon consummation of the Merger with Arbor, (i)
approximately 5.32 million shares of CVS ESOP Preference Stock were issued and
outstanding and (ii) no other shares of Preferred Stock were issued or
outstanding. Under the CVS Charter, the Board of Directors has the authority,
without further stockholder approval but subject to certain limitations set
forth in the CVS Charter, to create one or more series of Preferred Stock, to
issue shares of Preferred Stock in such series up to the maximum number of
shares of the relevant class of Preferred Stock authorized, and to determine
the preferences, rights, privileges and restrictions of any such series,
including the dividend rights, voting rights, rights and terms of redemption,
liquidation preferences, the number of shares constituting any such series and
the designation of such series. Pursuant to this authority, the Board of
Directors could create and issue a series of Preferred Stock with rights,
privileges or restrictions, and adopt a stockholder rights plan, having the
effect of discriminating against an existing or prospective holder of such
securities as a result of such security holder beneficially owning or
commencing a tender offer for a substantial amount of Common Stock. One of the
effects of authorized but unissued and unreserved shares of capital stock may
be to render more difficult or discourage an attempt by a potential acquiror
to obtain control of CVS by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of CVS' management. The issuance
of such shares of capital stock may have the effect of delaying, deferring or
preventing a change in control of CVS without any further action by the
stockholders of CVS. CVS has no present intention to adopt a stockholder
rights plan, but could do so without stockholder approval at any future time.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C. is the transfer agent
and registrar for the Common Stock.
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the
Company by Davis Polk & Wardwell, for the Underwriters by Sullivan & Cromwell,
and for the Selling Stockholders by Honigman Miller Schwartz and Cohn.
EXPERTS
The historical consolidated financial statements of CVS
Corporation and its subsidiaries as of December 31, 1997 and 1996 and for the
three years ended December 31, 1997 and the related consolidated financial
statement schedule have been incorporated by reference in this Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and given upon
the authority of said firm as experts in accounting and auditing.
UNDERWRITING
Subject to the terms and conditions of the Underwriting
Agreement, the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters for whom Goldman, Sachs
& Co. are acting as representatives, has severally agreed to purchase from the
Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Shares of
Common
Underwriter Stock
- ----------- ---------
<S> <C>
Goldman, Sachs & Co.................................
Credit Suisse First Boston Corporation.............. ---------
Total
</TABLE> =========
Under the terms and conditions of the Underwriting Agreement,
the Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers
at such price less a concession of $. per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $. per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Selling Stockholders have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of additional shares of Common Stock solely to
cover over-allotments, if any. If the Underwriters exercise their
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the
foregoing table, bears to the shares of Common Stock offered.
The Company and the Selling Stockholders have agreed that,
during the period beginning on the date of this Prospectus and continuing to
and including the date days, in the case of the Selling
Stockholders, and days, in the case of the Company, after the date
of this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any Common Stock or other securities of the Company (other than
pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the Common Stock or which
are convertible or exchangeable into Common Stock or other securities which are
substantially similar to the Common Stock, without the prior written consent
of the representatives, except for the shares offered hereby and pursuant to
the offering of Automatic Common Exchange Securities described below.
In connection with the offering, the Underwriters may purchase
and sell the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Common Stock;
and short positions created by the Underwriters involve the sale by the
Underwriters of a greater number of shares of Common Stock than they are
required to purchase from the Selling Stockholders in the offering. The
underwriters also may impose a penalty bid, whereby selling concessions
allowed to broker-dealers in respect of the securities sold in the offering
may be reclaimed by the Underwriters if such shares of Common Stock are
repurchased by the Underwriters in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail
in the open market; and these activities, if commenced, may be discontinued at
any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
The Company and the Selling Stockholders have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act.
Up to additional shares of Common Stock (or up to
shares if the applicable over-allotment option is exercised in full) may be
delivered by the CVS Automatic Common Exchange Security Trust to holders of
the Automatic Common Exchange Securities upon exchange of the Automatic Common
Exchange Securities on , 199 (the "Exchange Date"). In lieu
of delivery of such shares, the Selling Stockholders may elect to pay cash on
the Exchange Date for each share then deliverable in an amount equal to the
then "Average Market Price" of the Common Stock in accordance with the terms
of the Automatic Common Exchange Securities. The Automatic Common Exchange
Securities are being offered through an underwriter or underwriters in the
manner described in the prospectus relating to such offer. The respective
closings of the offerings of the Common Stock and the Automatic Common
Exchange Securities are not dependent upon one another.
==========================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon
as having been authorized. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
------------------
TABLE OF CONTENTS
Page
Available Information................................................3
Incorporation of Certain Documents
by Reference...................................................3
Cautionary Statement Regarding
Forward-Looking Statements.....................................4
The Company..........................................................5
Recent Developments..................................................9
Use of Proceeds.....................................................10
Price Range of Common Stock ........................................10
Dividend Policy.....................................................11
Selected Historical Consolidated
Financial and Operating Data..................................12
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.....................................14
Selling Stockholders................................................25
Description of Capital Stock........................................28
Validity of Common Stock............................................29
Experts.............................................................29
Underwriting........................................................30
==========================================================================
Shares
CVS Corporation
Common Stock
(par value $.01 per share)
------------------
CVS
------------------
Goldman, Sachs & Co.
Credit Suisse First Boston
==========================================================================
SUBJECT TO COMPLETION, DATED MAY 7, 1998
Shares
CVS Corporation
Common Stock
(par value $.01 per share)
------------------
This Prospectus relates to an aggregate of up to shares
of Common Stock of the Company beneficially owned by the Selling Stockholders
identified under the heading "Selling Stockholders" that may be delivered by
the CVS Automatic Common Exchange Security Trust (the "Trust") to holders of
the Trust Automatic Common Exchange Securities of the Trust (the "Automatic
Common Exchange Securities") upon exchange of such securities on (
shares assuming that the Underwriters exercise in full the number of
Automatic Common Exchange Securities subject to the over-allotment option). The
Company will receive no portion of the proceeds of the sale of the Common
Stock offered hereby or of the sale of the Automatic Common Exchange
Securities. The Automatic Common Exchange Securities are being sold by the
Trust in an offering described in the attached prospectus of the Trust (the
"Trust Prospectus"). See "Trust Prospectus".
The Selling Stockholders are separately offering up to
shares of Common Stock (exclusive of over-allotment shares) pursuant to a
separate prospectus of the Company. The respective closings of the offerings
of the Automatic Common Exchange Securities and the direct offering of Common
Stock are not dependent upon one another. The Company will not receive any
proceeds from the sales of the shares of Common Stock.
The Common Stock is currently traded on the New York Stock
Exchange under the symbol "CVS". On May 6, 1998, the last reported sale price
for the Common Stock on the New York Stock Exchange Composite Tape was
$69 3/8 per share. See "Price Range of Common Stock".
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer or the solicitation of an offer to buy nor shall there
be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws or any such State.
------------------
Goldman, Sachs & Co.
------------------
The date of this Prospectus is , 1998.
PLAN OF DISTRIBUTION
The Automatic Common Exchange Securities will be distributed as
described in the Trust Prospectus (as defined below) under the caption
"Underwriting".
TRUST PROSPECTUS
The Automatic Common Exchange Securities are being offered
pursuant to a separate prospectus of the Trust (the "Trust Prospectus"). This
Prospectus relates only to the Common Stock that may be delivered upon
exchange of the Automatic Common Exchange Securities. The Company takes no
responsibility for any information included in or omitted from the Trust
Prospectus. The Trust Prospectus does not constitute a part of this
Prospectus nor is it incorporated by reference herein.
VALIDITY OF COMMON STOCK
The validity of the Common Stock will be passed upon for the
Company by Davis Polk & Wardwell, for the Underwriter by Sullivan & Cromwell,
and for the Selling Stockholders by Honigman Miller Schwartz and Cohn.
EXPERTS
The historical consolidated financial statements of CVS
Corporation and its subsidiaries as of December 31, 1997 and 1996 and for the
three years ended December 31, 1997 and the related consolidated financial
statement schedule have been incorporated by reference in this Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and given upon
the authority of said firm as experts in accounting and auditing.
==========================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon
as having been authorized. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities other than the
securities to which it relates or an offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to
its date.
------------------
TABLE OF CONTENTS
Page
Available Information..........................................A-3
Incorporation of Certain Documents
by Reference.............................................A-3
Cautionary Statement Regarding
Forward-Looking Statements...............................A-4
The Company....................................................A-5
Use of Proceeds...............................................A-10
Price Range of Common Stock ..................................A-10
Dividend Policy...............................................A-11
Selected Historical Consolidated
Financial and Operating Data............................A-12
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...............................A-14
Selling Stockholders..........................................A-25
Description of Capital Stock..................................A-28
Validity of Common Stock......................................A-29
Experts.......................................................A-29
Underwriting..................................................A-30
==========================================================================
Shares
CVS Corporation
Common Stock
(par value $.01 per share)
------------------
CVS
------------------
Goldman, Sachs & Co.
==========================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the fees and expenses, other
than underwriting discounts and commissions, payable by the Company in
connection with the Offering. The Selling Stockholders will not incur any
expenses in connection with the sale of the shares. All of such expenses
except the Securities and Exchange Commission registration fee and the NASD
filing fee are estimated:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee....... $51,419
Blue sky fees and expenses................................ *
NASD filing fee........................................... *
Printing expense.......................................... *
Accounting fees and expenses.............................. *
Legal fees and expenses................................... *
Miscellaneous............................................. *
-----------
Total.................................................. $ *
===========
*To be completed by amendment.
Item 15. Indemnification of Directors and Officers
Exculpation. Section 102(b)(7) of the Delaware Law permits a
corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision may not eliminate or limit
the liability of a director for any breach of the director's duty of loyalty
to the corporation or its stockholders, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
for the payment of unlawful dividends, or for any transaction from which the
director derived an improper personal benefit.
The CVS Charter limits the personal liability of a director to
CVS and its stockholders for monetary damages for a breach of fiduciary duty
as a director to the fullest extent permitted by law.
Indemnification. Section 145 of the Delaware Law permits a
corporation to indemnify any of its directors or officers who was or is a
party, or is threatened to be made a party to any third party proceeding by
reason of the fact that such person is or was a director or officer of the
corporation, against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to believe that such person's
conduct was unlawful. In a derivative action, i.e., one by or in the right of
a corporation, the corporation is permitted to indemnify directors and
officers against expenses (including attorneys' fees) actually and reasonably
incurred by them in connection with the defense or settlement of an action or
suit if they acted in good faith and in a manner that they reasonably believed
to be in or not opposed to the best interests of the corporation, except that
no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in
which the action or suit was brought shall determine upon application that the
defendant directors or officers are fairly and reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Expenses, including attorneys' fees, incurred by any such
person in defending any such action, suit or proceeding shall be paid or
reimbursed by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt by it of an undertaking of such person
to repay such expenses if it shall ultimately be determined that such person
is not entitled to be indemnified by the corporation.
The CVS Charter provides for indemnification of directors and
officers of CVS against liability they may incur in their capacities as such
to the fullest extent permitted under the Delaware Law.
Insurance. CVS has in effect Directors and Officers Liability
Insurance with a limit of $100,000,000 and pension trust liability insurance
with a limit of $50,000,000. This insurance was purchased in layers from
National Union Fire Insurance Company of Pittsburgh, Pennsylvania; Federal
Insurance Company of Warren, New Jersey; Royal Indemnity Company of Charlotte,
North Carolina; Columbia Casualty Insurance Company of Chicago, Illinois; St.
Paul Surplus Lines Company of St. Paul, Minnesota; and Reliance Insurance
Company of Philadelphia, Pennsylvania. The pension trust liability insurance
covers actions of directors and officers as well as other employees with
fiduciary responsibilities under ERISA.
Revco Directors and Officers. The Merger Agreement dated as of
July 1997 among CVS and Revco (the "Revco Merger Agreement") provides that CVS
will cause Revco and its Subsidiaries to indemnify (including the payment of
reasonable fees and expenses of legal counsel) the current or former directors
or officers of Revco to the fullest extent permitted by law for damages and
liabilities arising out of facts and circumstances occurring at or prior to
the Merger. The Revco Merger Agreement also provides that for a period of six
years after the Merger CVS will cause to be maintained in effect Revco's
existing policies of directors' and officers' liability insurance as in effect
on February 6, 1997 (provided that CVS may substitute policies with reputable
and financially sound carriers having at least the same coverage and amounts
and containing terms and conditions that are no less advantageous) with
respect to facts or circumstances occurring at or prior to the Merger;
provided that if the annual premium for such insurance during such six-year
period exceeds 200% of the annual premiums paid by Revco as of February
6, 1997 for such insurance (such 200% amount, the "Maximum Premium") then CVS
will cause Revco to provide the most advantageous directors' and officers'
insurance coverage then available for an annual premium equal to the Maximum
Premium.
Arbor Directors and Officers. The Agreement and Plan of Merger
dated as of February 8, 1998, among CVS, Arbor and Red Acquisition, Inc.
provides that after the Effective Time (as defined in the Merger Agreement),
CVS will cause Arbor to indemnify (including the payment of reasonable fees
and expenses of legal counsel) each person who was a director or officer of
Arbor or its subsidiaries at or prior to the date of the Merger Agreement to
the fullest extent permitted by law for damages and liabilities arising out of
facts and circumstances occurring at or prior to the Effective Time. The
Merger Agreement also provides that, for a period of six years after the
Effective Time, CVS will maintain in effect Arbor's existing policies of
directors' and officers' liability insurance as in effect on February 8, 1998
(provided that CVS may substitute policies with reputable and financially
sound carriers having at least the same coverage and amounts and containing
terms and conditions that are no less advantageous to the covered persons)
with respect to facts or circumstances occurring at or prior to the Effective
Time; provided that if the aggregate annual premium for such insurance during
such six-year period exceeds 200% of the aggregate annual premium paid by Arbor
as of February 8, 1998 for such insurance, then CVS will cause Arbor to
provide the most advantageous directors' and officers' insurance coverage then
available for an annual premium equal to such 200% of the February 8, 1998
premiums.
Item 16. Exhibits
See index to exhibits at E-1.
Item 17. Undertakings
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 15
above or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Pursuant to the requirements of the Securities Act of 1933, CVS
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Woonsocket, State of Rhode Island,
on May 7, 1998.
CVS CORPORATION
By:/s/ Charles C. Conaway
--------------------
Charles C. Conaway
Executive Vice President and
Chief Financial Officer
The registrant and each person whose signature appears below
constitutes and appoints Charles C. Conaway, his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign and file (i) any and all amendments (including
post-effective amendments) to this registration statement, with all exhibits
thereto, and other documents in connection therewith, and (ii) a registration
statement, and any and all amendments, thereto, relating to the offering
covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board, Chief Executive May 7, 1998
Officer and Director (Principal Executive
/s/ Stanley P. Goldstein Officer)
- -----------------------------------
Stanley P. Goldstein
Executive Vice President and Chief May 7, 1998
Financial Officer (Principal Financial
/s/ Charles C. Conaway Officer)
- -----------------------------------
Charles C. Conaway
/s/ Larry D. Solberg Vice President (Principal Accounting Officer) May 7, 1998
- -----------------------------------
Larry D. Solberg
/s/ Allan J. Bloostein Director May 7, 1998
- -----------------------------------
Allan J. Bloostein
/s/ W. Don Cornwell Director May 7, 1998
- -----------------------------------
W. Don Cornwell
/s/ Thomas P. Gerrity Director May 7, 1998
- -----------------------------------
Thomas P. Gerrity
/s/ William H. Joyce Director May 7, 1998
- -----------------------------------
William H. Joyce
/s/ Terry R. Lautenbach Director May 7, 1998
- -----------------------------------
Terry R. Lautenbach
/s/ Terrence Murray Director May 7, 1998
- -----------------------------------
Terrence Murray
/s/ Sheli Z. Rosenberg Director May 7, 1998
- -----------------------------------
Sheli Z. Rosenberg
Vice Chairman, Chief Operating Officer and May 7, 1998
/s/ Thomas M. Ryan Director
- -----------------------------------
Thomas M. Ryan
/s/ Ivan G. Seidenberg Director May 7, 1998
- -----------------------------------
Ivan G. Seidenberg
/s/ Patricia Carry Stewart Director May 7, 1998
- -----------------------------------
Patricia Carry Stewart
/s/ Thomas O. Thorsen Director May 7, 1998
- -----------------------------------
Thomas O. Thorsen
/s/ M. Cabell Woodward, Jr. Director May 7, 1998
- -----------------------------------
M. Cabell Woodward, Jr.
/s/ Eugene Applebaum Director May 7, 1998
- -----------------------------------
Eugene Applebaum
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement*
2.1 Agreement and Plan of Merger dated as of February 8, 1998,
among the Registrant, Arbor Drugs, Inc. and Red Acquisition, Inc.
(incorporated by reference to Annex A of the Joint Proxy
Statement/Prospectus contained in the Registration Statement on
Form S-4 No. 333-47193 dated March 2, 1998)
4.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of CVS
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
4.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2
of CVS Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
4.3 Specimen Common Stock certificate (incorporated by reference to
Exhibit 4-1 to the Registrant's Registration Statement on Form 8-B
dated November 4, 1996)
4.4 Registration Rights Agreement dated as of March 31, 1998*
4.5 Amendment No. 1 to Registration Rights Agreement dated as of
April 20, 1998*
5.1 Opinion of Davis Polk & Wardwell regarding the validity of the
securities being registered*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Davis Polk & Wardwell (contained in the Opinion of
Counsel filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (included on signature page)
*To be filed by amendment.
</TABLE>
EXHIBIT 23.1
[KPMG Peat Marwick Letterhead LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
CVS Corporation
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-3 of our reports dated February 9, 1998
appearing and incorporated by reference in the Annual Report on Form 10-K of
CVS Corporation for the year ended December 31, 1997.
We consent to the reference to our firm under the headings
"Selected Historical Consolidated Financial and Operating Data" and "Experts"
in the Registration Statement on Form S-3.
/s/ KPMG PEAT MARWICK LLP
- ------------------------------------
KPMG PEAT MARWICK LLP
Providence, Rhode Island
May 6, 1998
