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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

CVS CORPORATION
(Exact name of registrant as specified in its charter)

One CVS Drive, Woonsocket, Rhode Island 02895
(Address of principal executive offices)

Telephone: (401) 765-1500

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yesý    No o

Common Stock, $0.01 par value, issued and outstanding at August 5, 2004:
399,400,000 shares

INDEX

1

Part I    Item 1

CVS Corporation

Consolidated Condensed Statements of Operations

(Unaudited)

See accompanying notes to consolidated condensed financial statements.

2

Part I    Item 1

CVS Corporation

Consolidated Condensed Balance Sheets

(Unaudited)

See accompanying notes to consolidated condensed financial statements.

3

Part I    Item 1

CVS Corporation

Consolidated Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to consolidated condensed financial statements.

4

Part I    Item 1

CVS Corporation

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 1

        The accompanying consolidated condensed financial statements of CVS Corporation and its wholly-owned subsidiaries ("CVS" or the "Company") have been prepared without audit, in accordance with the rules and regulations of the Securities and Exchange Commission. In accordance with such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. These consolidated condensed financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2004.

        In the opinion of management, the accompanying consolidated condensed financial statements include all adjustments (consisting only of normal recurring adjustments), which are necessary to present a fair statement of the Company's results for the interim periods presented. Because of the influence of various factors on the Company's operations, including certain holidays and other seasonal influences, net earnings for any interim period may not be comparable to the same interim period in previous years or necessarily indicative of earnings for the full fiscal year.

Note 2

        The Company accounts for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, no stock-based employee compensation cost is reflected in net earnings for options granted under those plans since they had an exercise price equal to the market value of the underlying common stock and the number of shares were fixed on the date of grant. The following table summarizes the effect on net earnings and earnings per common share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation for the respective periods:

(1)

Amounts represent the after-tax compensation costs for restricted stock grants.

5

Note 3

        As of July 3, 2004, the Company operated 4,206 retail and specialty pharmacy stores in 32 states and the District of Columbia. The Company currently operates two business segments, Retail Pharmacy and Pharmacy Benefit Management ("PBM"). The Company's business segments are operating units that offer different products and services, and require distinct technology and marketing strategies.

        As of July 3, 2004, the Retail Pharmacy segment included 4,159 retail drugstores and the Company's online retail website, CVS.com®. The retail drugstores, which operate under the CVS® or CVS/pharmacy® name, are located in 28 states and the District of Columbia. The Retail Pharmacy segment is the Company's only reportable segment.

        The PBM segment, which operates under the PharmaCare® Management Services and Pharmacare® Pharmacy names, provides a full range of prescription benefit management services to managed care and other organizations. These services include plan design and administration, formulary management, mail order pharmacy services, claims processing and generic substitution. The PBM segment also includes the Company's specialty pharmacy business, which focuses on supporting individuals that require complex and expensive drug therapies. The PBM segment operates 47 retail and specialty pharmacies, located in 19 states and the District of Columbia.

        Following is a reconciliation of the Company's business segments to the consolidated condensed financial statements as of and for the respective periods:

6

Note 4

        Accumulated other comprehensive loss consists of a minimum pension liability and market value adjustments on hedge instruments. The minimum pension liability totaled $59.4 million, net of a $22.5 million tax benefit, as of July 3, 2004 and January 3, 2004. The market value adjustments on the hedge instruments totaled $16.9 million, net of a $6.4 million tax benefit as of July 3, 2004. No hedge instruments were outstanding as of January 3, 2004.

        Following are the changes in comprehensive income:

        During the third quarter of 2004, the Company expects to refinance a portion of the short-term debt issued to finance the acquisition of the Eckerd Operations with longer-term financing. To manage a portion of the risk associated with changes in market interest rates, the Company entered into Treasury-Lock Contracts (the "Contracts") with total notional amounts of $600 million. The Company expects to settle these Contracts during the third quarter of 2004 in conjunction with the placement of the longer-term financing. The Company accounts for derivatives in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" as modified by SFAS No. 138 "Accounting for Derivative Instruments and Certain Hedging Activities." As of July 3, 2004, the Company had no freestanding derivatives in place other than the Contracts.

Note 5

        Following are the components of net interest expense:

7

Note 6

        The Company accounts for goodwill and intangibles under SFAS No. 142, "Goodwill and Other Intangible Assets." As such, goodwill and other indefinite-lived intangible assets are not amortized, but are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be an impairment. During the third quarter of 2003, the Company performed its required annual goodwill impairment test. That annual review concluded there was no impairment of goodwill.

        The carrying amount of goodwill as of July 3, 2004 was $889.0 million. There has been no impairment of goodwill during the twenty-six weeks ended July 3, 2004.

        Intangible assets other than goodwill are required to be separated into two categories: finite-lived and indefinite-lived. Intangible assets with finite useful lives are amortized over their estimated useful life, while intangible assets with indefinite useful lives are not amortized. The Company currently has no intangible assets with indefinite lives.

        Following is a summary of the Company's amortizable intangible assets as of the respective balance sheet dates:

        The increase in the gross carrying amount of customer lists and covenants not to compete during the twenty-six weeks ended July 3, 2004 was primarily due to the acquisition of customer lists. The amortization expense for these finite-lived intangible assets for the thirteen and twenty-six week periods ended July 3, 2004 was $17.9 million and $36.5 million, respectively. The anticipated annual amortization expense for these intangible assets is $69.9 million, $63.3 million, $57.7 million, $52.5 million, $47.3 million and $40.4 million in 2004, 2005, 2006, 2007, 2008 and 2009, respectively.

Note 7

        The Company previously disclosed in its financial statements for the year ended January 3, 2004, that it expected to make cash contributions to the defined benefit pension plans during the next fiscal year of $17.5 million. As of July 3, 2004, the Company has made contributions of $1.3 million and presently believes it will make cash contributions of $16.2 during the remainder of fiscal 2004.

8

        Following is a summary of the net periodic pension costs for the defined benefit and other postretirement benefit plans for the respective periods.