Notes to Consolidated Financial Statements

Index 2000 - A Year of Great Achievement Financial Highlights To our Shareholders Positioned for Growth Front-End Business New Store Growth Program CVS Procare CVS.com Community Involvement Store Count by State Management's Discussion and Analysis... Management's Responsibility for Financial Reporting Independent Auditor's Report Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements.    Significant Accounting Policies    Borrowing and Credit Agreements    Leases    Employee Stock Ownership Plan    Stock Incentive Plans    Pension Plans and Other Postretirement Benefits    Income Taxes    Commitments & Contingencies    Business Segments    Business Combinations    Reconciliation of Earnings Per Common Share    Quarterly Financial Information (Unaudited) Five-Year Financial Summary Corporate Information

5. Stock Incentive Plans

As of December 30, 2000, the Company had the following stock incentive plans:

1997 Incentive Compensation Plan
The 1997 Incentive Compensation Plan (the "1997 ICP") provides for the granting of up to 23,382,245 shares of common stock in the form of stock options, stock appreciation rights, restricted shares, deferred shares and performance-based awards to selected officers, employees and directors of the Company. All grants under the 1997 ICP are awarded at fair market value on the date of grant. The right to exercise or receive these awards generally commences between one and five years from the date of the grant and expires not more than ten years after the date of the grant, provided that the holder continues to be employed by the Company. As of December 30, 2000, there were 11,930,278 shares available for future grants under the 1997 ICP.

Restricted shares issued under the 1997 ICP may not exceed 3.6 million shares. In 2000, 1999 and 1998, 952,251, 59,908 and 155,400 shares of restricted stock were granted at a weighted average grant date fair value of $30.58, $51.26 and $37.80, respectively. Participants are entitled to vote and receive dividends on their restricted shares, although they are subject to certain transfer restrictions. Compensation costs, which are recognized over the restricted period, totaled $5.9 million in 2000, $2.3 million in 1999 and $3.1 million in 1998.

The 1996 Directors Stock Plan
The 1996 Directors Stock Plan (the "1996 DSP") provides for the granting of up to 346,460 shares of common stock to the Company's nonemployee directors (the "Eligible Directors"). The 1996 DSP allows the Eligible Directors to elect to receive shares of common stock in lieu of cash compensation. Eligible Directors may also elect to defer compensation payable in common stock until their service as a director concludes. As of December 30, 2000, there were 230,416 shares available for future grant under the 1996 DSP.

Following is a summary of the stock option activity for the respective years:

	2000		1999		1998
	Shares	Exercise Price	Shares	Exercise Price	Shares	Exercise Price
Outstanding at beginning of year	12,964,600	$ 27.38	11,982,122	$ 23.31	16,070,146	$ 16.95
Granted(1)	6,964,015	33.84	2,175,342	48.02	3,119,410	37.16
Exercised	(3,510,785)	19.55	(927,080)	18.87	(7,137,027)	15.01
Canceled	(1,770,840)	37.37	(265,784)	37.65	(70,407)	26.48
Outstanding at end of year	14,646,990	31.11	12,964,600	27.38	11,982,122	23.31
Exercisable at end of year	4,048,842	$ 18.85	6,065,351	$ 17.92	6,127,402	$ 17.16

(1) During 2000, the Company granted 5.1 million stock options to substantially all full-time pharmacists and store managers.

Following is a summary of the stock options outstanding and exercisable as of December 30, 2000:

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
Under $15	398,062	4.2	$ 11.84	386,920	$ 12.13
$15.01 to $20.00	2,631,166	3.9	16.65	2,631,166	16.65
20.01 to 25.00	1,355,267	5.5	22.80	710,526	22.60
25.01 to 40.00	8,586,392	8.6	34.43	304,831	36.44
40.01 to 51.56	1,676,103	7.7	48.13	15,399	42.52
Total	14,646,990	7.2	$ 31.11	4,048,842	$ 18.85

The Company applies APB Opinion No. 25 to account for its stock incentive plans. Accordingly, no compensation cost has been recognized for stock options granted. Had compensation cost been recognized based on the fair value of stock options granted consistent with SFAS No. 123, net earnings and net earnings per common share ("EPS") would approximate the pro forma amounts shown below:

	Fiscal Year
In millions, except per share amounts	2000	1999	1998
Net earnings:   As reported	$ 746.0	$ 635.1	$ 384.5
Pro forma	717.7	614.7	359.0
Basic EPS:   As reported	$   1.87	$   1.59	$   0.96
Pro forma	1.80	1.53	0.89
Diluted EPS:   As reported	$   1.83	$   1.55	$   0.95
Pro forma	1.76	1.50	0.88

The fair value of each stock option grant was estimated using the Black-Scholes Option Pricing Model with the following assumptions:

	Fiscal Year
In millions	2000	1999	1998
Dividend yield	0.40%	0.58%	0.40%
Expected volatility	27.92%	25.86%	22.49%
Risk-free interest rate	6.25%	6.50%	5.75%
Expected life	6.5	6.0	7.0

1999 Employee Stock Purchase Plan
The 1999 Employee Stock Purchase Plan provides for the granting of up to 7,400,000 shares of common stock. Under the plan, eligible employees may purchase common stock at the end of each six month offering period, at a purchase price equal to 85% of the lower of the fair market value on the first day or the last day of the offering period.

Employees pay for the shares ratably over each offering period through payroll deductions. As of December 30, 2000, approximately 875,000 shares of common stock have been issued under the plan.

      INDEX