This excerpt taken from the CVS 8-K filed Feb 25, 2005.
COMPANY REVISES PREVIOUSLY ANNOUNCED 2004 RESULTS
WOONSOCKET, RHODE ISLAND, February 25, 2005 - CVS Corporation announced today that it is making a one-time, non-cash, after-tax adjustment of $40.5 million to its results in the fourth quarter of 2004 to reflect the cumulative impact of a change in accounting practices as it relates to leased properties. The adjustment reduces the Companys previously announced diluted earnings per share by $0.09, from $0.70 to $0.61. This action is being taken to conform with the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (SEC) on February 7, 2005, in a letter to the American Institute of Certified Public Accountants regarding certain operating lease accounting matters and their application under generally accepted accounting principles. Diluted earnings per share for fiscal year 2004 will be reduced by $0.10, from $2.30 to $2.20, as a result of this adjustment.
The Company has determined that its current method of accounting for leasehold improvements funded by landlord incentives or allowances under operating leases (tenant improvement allowances) and its current method of accounting for rent holidays are not consistent with the views recently expressed by the SEC staff. The one-time, non-cash adjustment reflects the cumulative impact of the change in accounting over the past 20 years, and was not material to the Companys reported results in any one year. The portion of the adjustment pertaining to fiscal years 2000 through 2004 is approximately $2.4 million unfavorable to after-tax earnings for those five years combined. The Company believes that the impact on future diluted earnings per share will be immaterial on an annual basis and will not change its previously stated earnings guidance for 2005. Furthermore, the adjustment will not affect historical or future cash flows or the timing of payments under related leases.
For the past 20 years, CVS has been accounting for tenant improvement allowances and rent holidays using methods that have been common practice among a number of prominent retail companies, stated David Rickard, Executive Vice President and Chief Financial Officer of CVS Corporation. Given the recent views expressed by the SEC, we decided to reflect the change in accounting for these items in our 2004 results, which will be reported in our 2004 Form 10-K that is expected to be filed with the SEC in mid-March.
This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined under the caption Cautionary Statement Concerning Forward-Looking Statements in its Annual Report on Form 10-K for the fiscal year ended January 3, 2004 and its Quarterly Report on Form 10-Q for the third quarter ended October 2, 2004.
CVS is Americas #1 retail pharmacy, with over 5,300 retail and specialty pharmacy stores in 36 states and the District of Columbia. With more than 40 years of dynamic growth in the retail pharmacy industry, CVS is committed to being the easiest pharmacy retailer for customers to use. CVS has created innovative approaches
to serve the healthcare needs of all customers through its CVS/pharmacy® stores; its online pharmacy, CVS.com®; and its pharmacy benefit management and specialty pharmacy subsidiary, PharmaCare®. General information about CVS is available through the Investor Relations portion of the Companys website, at http://investor.CVS.com, as well as through the press room portion of the Companys website, at www.cvs.com/pressroom.