FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1994
Commission File Number 1-1011
MELVILLE CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
NEW YORK 04-1611460
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
One Theall Road, Rye, New York 10580
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 925-4000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at July 30, 1994
----- ----------------------------
Common Stock, $1 par value 105,515,910
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Consolidated Condensed Statements of Earnings -
Second Quarter and Six Months
Ended June 30, 1994 and 1993 3
Consolidated Condensed Balance Sheets -
As of June 30, 1994, December 31, 1993 and June 30, 1993 4 - 6
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993 7
Notes to Consolidated Condensed Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
Review by Independent Auditors 13
Exhibit I - - Report of Review by Independent Auditors 14
Part II. - Other Information 15
2
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
($ and shares in thousands, except per share data)
<TABLE>
Second Quarter Ended June 30, Six Months Ended June 30,
----------------------------- -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,507,469 $2,537,395 $4,887,309 $4,570,406
Cost of goods sold, buying
and warehousing costs 1,605,241 1,610,560 3,186,572 2,948,822
---------- ---------- ---------- ----------
902,228 926,835 1,700,737 1,621,584
---------- ---------- ---------- ----------
Store operating, selling, general
and administrative expenses 761,057 731,043 1,501,387 1,406,194
Depreciation and amortization 52,159 49,559 103,494 98,850
---------- ---------- ---------- ----------
813,216 780,602 1,604,881 1,505,044
---------- ---------- ---------- ----------
Operating profit 89,012 146,233 95,856 116,540
Interest expense, net 5,405 3,934 9,501 7,113
---------- ---------- ---------- ----------
Earnings before income taxes
and minority interests 83,607 142,299 86,355 109,427
Provision for income taxes 22,975 52,154 23,873 39,518
---------- ---------- ---------- ----------
Earnings before minority interests 60,632 90,145 62,482 69,909
Minority interests in net earnings 15,030 15,620 19,385 17,070
---------- ---------- ---------- ----------
Net earnings $45,602 $ 74,525 $ 43,097 $ 52,839
========== ========== ========== ==========
Net earnings per share of common stock $0.39 $ 0.67 $ 0.33 $ 0.43
========== ========== ========== ==========
Dividends per share of common stock $0.38 $ 0.38 $ 0.76 $ 0.76
========== ========== ========== ==========
Weighted average common shares outstanding 105,447 104,994 105,404 104,888
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of June 30, 1994, December 31, 1993 and June 30, 1993
($ in thousands)
<TABLE>
June 30, December 31, June 30,
1994 1993 1993
(Unaudited) (Unaudited)
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 70,852 $ 80,971 $ 74,729
Accounts receivable (net of allowance
for doubtful accounts of $22,917
at June 30, 1994, $32,534 at
December 31, 1993 and $23,162 at
June 30, 1993) 217,819 243,998 248,088
Inventories
Finished goods 2,083,544 1,849,651 1,884,642
Work-in-process 201 1,616 679
Raw materials and supplies 11,095 7,505 13,058
---------- ---------- ----------
Total inventories 2,094,840 1,858,772 1,898,379
Prepaid expenses 190,580 214,649 194,357
---------- ---------- ----------
Total Current Assets 2,574,091 2,398,390 2,415,553
Property, plant, equipment and leasehold
improvements, at cost 1,978,855 1,886,164 1,836,340
Less accumulated depreciation and
amortization 633,345 583,964 618,088
---------- ---------- ----------
Net property, plant, equipment and
leasehold improvements 1,345,510 1,302,200 1,218,252
---------- ---------- ----------
Goodwill (net of accumulated amortization
of $88,043 at June 30, 1994,
$81,531 at December 31, 1993
and $75,081 at June 30, 1993) 436,215 443,678 424,021
Deferred charges and other assets 107,745 113,455 112,716
Leased property under capital leases,
net of accumulated amortization 13,555 14,677 15,636
---------- ---------- ----------
Total Assets $4,477,116 $4,272,400 $4,186,178
========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(continued)
4
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of June 30, 1994, December 31, 1993 and June 30, 1993
($ and shares in thousands, except per share data)
<TABLE>
June 30, December 31, June 30,
1994 1993 1993
(Unaudited) (Unaudited)
----------- ------------ -----------
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Accounts payable $ 626,081 $ 567,131 $ 522,938
Accrued expenses 416,276 585,997 453,579
Notes payable 529,100 90,000 456,500
Federal income taxes payable 8,071 74,376 -
Other current liabilities 10,470 10,593 7,437
--------- --------- ---------
Total Current Liabilities 1,589,998 1,328,097 1,440,454
--------- --------- ---------
Long-term debt 341,661 341,763 348,928
Deferred Federal income taxes 88,552 83,333 34,516
Other long-term liabilities 167,222 177,173 242,810
Minority interests in subsidiaries 75,423 93,858 62,933
REDEEMABLE PREFERRED STOCK
Cumulative preferred stock, Series B,
$4.00 dividend, par value $100, redeemable
at par plus accrued dividends; authorized
and issued 17 shares with 4 held
in treasury as of June 30, 1994,
December 31, 1993 and June 30, 1993 1,330 1,330 1,334
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(continued)
5
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of June 30, 1994, December 31, 1993 and June 30, 1993
($ and shares in thousands, except per share data)
<TABLE>
June 30, December 31, June 30,
1994 1993 1993
(Unaudited) (Unaudited)
----------- ------------ -----------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preference stock, $1.00 par value,
authorized 50,000 shares; Series
One ESOP Convertible, liquidation value $53.45;
6,443 shares issued and outstanding at June 30
1994, 6,499 at December 31, 1993, and
6,561 at June 30, 1993 $ 344,379 $ 347,346 $ 350,664
Guaranteed ESOP Obligation (328,570) (328,570) (335,877)
Common stock, par value $1.00, authorized
300,000 shares; issued 111,385 at June 30,
1994, 111,278 at December 31, 1993 and
111,223 at June 30, 1993; outstanding,
105,508 at June 30, 1994, 105,346 at
December 31, 1993 and 105,229 at
June 30, 1993, net of shares held in
treasury 111,385 111,278 111,223
Capital surplus 45,624 42,123 39,739
Retained earnings 2,327,043 2,364,322 2,182,150
Common stock in treasury, at cost; 5,877
shares at June 30, 1994, 5,932 at
December 31, 1993, and 5,994 at
June 30, 1993 (286,931) (289,653) (292,696)
---------- ---------- ----------
Total Shareholders' Equity 2,212,930 2,246,846 2,055,203
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $4,477,116 $4,272,400 $4,186,178
========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
<TABLE>
Six Months Ended
----------------------------
June 30, June 30,
1994 1993
---------- ---------
<S> <C> <C>
Net Cash Used in Operating Activities $(145,860) $(150,752)
Cash Flows from Investing Activities:
Additions to property, plant, equipment
and leasehold improvements (155,815) (151,037)
Proceeds from sale or disposal of assets 64,084 48,713
Acquisitions, net of cash - (14,273)
---------- ---------
Net Cash Used in Investing Activities (91,731) (116,597)
---------- ---------
Cash Flows from Financing Activities:
Increase in notes payable 439,100 456,500
Decrease in book overdrafts (93,067) (122,643)
Dividends paid (118,469) (134,356)
Decrease in long-term debt and obligations under
capital leases (2,046) (5,648)
Proceeds from issuance of common stock 1,954 3,090
Other - (3)
---------- ---------
Net Cash Provided by Financing Activities 227,472 196,940
---------- ---------
Net decrease in cash and cash equivalents (10,119) (70,409)
Cash and cash equivalents at beginning of year 80,971 145,138
---------- ---------
Cash and Cash Equivalents at End of Period $ 70,852 $ 74,729
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
7
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position of the Company as of June 30, 1994 and 1993 and the results of
operations for the second quarter and six month periods then ended and of
cash flows for the six month periods then ended. Because of the seasonality
of the specialty retailing business, operating results of the Company on a
quarterly basis may not be indicative of operating results for the full
year.
2. Certain reclassifications have been made to the consolidated condensed
financial statements of the prior year to conform to the current year
presentation.
3. Primary earnings per share is computed by dividing net earnings, after
deducting net preferred dividends on redeemable preferred stock and Series
One ESOP Convertible Preference Stock ("ESOP Preference Stock"), by the
weighted average number of common shares outstanding during the period.
Fully diluted earnings per share is computed based upon the assumed
conversion of the ESOP Preference Stock into common stock. Net earnings is
adjusted for the difference between the current dividend on the ESOP
Preference Stock and the common stock, and for certain non-discretionary
expenses based on net earnings. The conversion of the ESOP Preference
Stock and adjustments described above are immatrerial or anti-dilutive
and, therefore, fully diluted earnings per share has not been presented.
4. The components of net interest expense are as follows:
Second Quarter Six Months
Ended June 30, Ended June 30
------------------ --------------------
1994 1993 1994 1993
---- ---- ---- ----
($ in thousands)
----------------
Interest expense $5,704 $4,109 $10,029 $7,535
Interest income (160) (49) (337) (203)
Capitalized interest (139) (126) (191) (219)
------ ------ ------- ------
Interest expense, net $5,405 $3,934 $ 9,501 $7,113
====== ====== ======= ======
5. During the six months ended June 30, 1994 and 1993, the Company had the
following non-cash financing and investing activities:
($ in thousands) 1994 1993
---------------- ---- ----
Performance share awards $1,558 $ -
======= =======
Fair value of assets acquired $ - $10,680
Cash paid - 10,488
------- -------
Liabilities assumed $ - $ 192
======= =======
Book value of stock reissued from treasury in
connection with pooling of interests $ - $18,976
======= =======
Note received for operations sold $ - $29,413
======= =======
6. On August 1, 1994, the Company completed the acquisition of a chain of 10
stores to sell off-price apparel in Puerto Rico for approximately $22.5
million. Pro forma financial results have not been presented for this
acquisition as the operations are not material to the consolidated
condensed financial statements of the Company.
8
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Results of Operations
- ---------------------
For the Second Quarter Ended June 30, 1994 and 1993
- ---------------------------------------------------
Consolidated net sales for the quarter ended June 30, 1994 were $2.51
billion, a decrease of 1.2% from consolidated net sales of $2.54 billion for the
quarter ended June 30, 1993. Same store sales increased 1.9% over the prior
year's period compared to an increase of 0.4% in 1993.
Operating results for the quarter were unfavorably impacted by the timing
of the Palm and Easter selling periods which occurred in the first quarter of
1994 as compared to the second quarter of 1993. In addition, the current year's
accounting period had six fewer selling days than the prior year's quarter.
Consolidated net sales excluded the Chess King, Accessory Lady and Prints
Plus divisions after their respective dates of disposition in 1993. Adjusting
for these dispositions, consolidated net sales for the quarter would have
increased 0.6% over the 1993 quarter.
For the second quarter of 1994, the Company reported consolidated net
earnings of $45.6 million compared to consolidated net earnings of $74.5 million
for the second quarter of 1993. Consolidated net earnings per share was $0.39
for the current year period as compared to $0.67 per share last year.
For the quarter ended June 30, 1994, net sales for the prescription drugs,
health and beauty aids segment increased 0.1% from the prior year period while
same store sales increased 4.0%, as compared to an increase of 4.8% in 1993.
Sales in 1994 benefited from improved front store business and the increased
growth of the pharmacy business. Gross margin as a percentage of net sales for
this segment declined due to an increase in the proportion of lower margined
prescription sales to total sales. This segment's share of consolidated net
sales in the second quarter of 1994 and 1993 was 40.8% and 40.3%, respectively.
Net sales for the apparel segment decreased 2.2% in the second quarter of
1994 compared to the prior year period. Adjusting for the exclusion of Chess
King and Accessory Lady after their disposals, net sales for this segment would
have increased 2.8%. Same store sales increased 0.2% compared to a decrease of
2.5% in 1993. Positive sales results were reported at Wilsons due primarily to
growth in accessories sales. Marshalls continued to be adversely affected,
however, by competitive and promotional factors in the apparel business. Gross
margin for the segment as a percentage of net sales decreased due to higher
markdowns at Marshalls and Wilsons and the exclusion of higher margined
businesses sold in 1993. For the second quarter of 1994, this segment
represented 30.9% of consolidated net sales as compared to 31.2% in the same
period last year.
The footwear segment experienced a decrease in net sales of 2.8% for the
quarter ended June 30, 1994 compared to the same period in 1993. This segment
reported a 0.7% decrease in same store sales during the second quarter of 1994
as compared to a 0.6% decrease for the comparable prior year period. The
decrease in net sales for the segment were attributable to Meldisco, which was
adversely impacted by the timing of the Easter holiday and weather conditions,
and due to the disappointing performance of FootAction. Thom McAn, however,
reported continued positive results in its ongoing product lines which partially
offset the impact of discontinuing its men's athletic and children's lines.
Gross margin as a percentage of net sales improved for the segment as lower
markdowns at Thom McAn offset higher markdowns at FootAction, while gross margin
at Meldisco was flat with last year as a percentage of net sales. For the second
quarter of 1994, this segment represented 17.7% of consolidated net sales,
compared to 18.0% for the second quarter of 1993.
(continued)
9
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Net sales in the toys and household furnishings segment decreased 0.4% in
the second quarter of 1994 as compared to the prior year period. Adjusting for
the exclusion of Prints Plus after its date of disposition, net sales for this
segment would have increased 1.9% for the quarter. Same store sales increased
2.8% for the quarter compared to a decrease of 5.3% in the second quarter of
last year. Segment results were impacted positively by strong same store sales
at Kay-Bee, largely attributable to the strong sales of male action figures and
licensed product, and the increased availability of closeout merchandise. Linens
'n Things continued to yield strong sales growth from the increase in its
superstore base and the continued expansion of its product offerings. Gross
margin as a percentage of net sales declined from the prior year due to changes
in sales mix within the segment and higher markdowns at Kay-Bee. This segment's
net sales for the second quarter of 1994 represented 10.6% of the consolidated
total as compared to 10.5% in 1993.
Cost of goods sold, buying and warehousing costs as a percentage of
consolidated net sales was 64.0% in the second quarter of 1994, compared to
63.5% in 1993. The increase resulted primarily from a change in sales mix toward
lower margined categories, as well as increased markdowns.
Store operating, selling, general and administrative expenses were 30.4% of
consolidated net sales for the second quarter of 1994 compared to 28.8% in the
prior year quarter. The increase was due primarily to the absence of holiday
sales, which hindered the Company's ability to fully leverage fixed costs.
Depreciation and amortization expense as a percentage of consolidated net
sales was 2.1% for the second quarter of 1994 as compared to 2.0% in the 1993
quarter, reflecting the effect of the timing of holiday sales.
Net interest expense totalled $5.4 million for the second quarter of 1994
as compared to $3.9 million in the second quarter of 1993. The increase in 1994
reflected the higher level of short-term borrowings as well as increased
borrowing rates.
Minority interests in net earnings for the second quarter were 0.6% of
consolidated net sales in both 1994 and 1993 and are based on the profitability
of the related operations.
The Company's effective tax rate for the quarter was 27.5%, compared to
36.7% in the second quarter of 1993. The lower effective tax rate in 1994 is due
to the relative mix of our businesses and the impact of the incomparability of
earnings between the two periods.
For the Six Months Ended June 30, 1994 and 1993
- -----------------------------------------------
Consolidated net sales for the six months ended June 30, 1994 were $4.89
billion, an increase of 6.9% over consolidated net sales of $4.57 billion for
the six months ended June 30, 1993. Same store sales increased 3.5% over the
prior year's period compared to an increase of 0.6% in 1993.
Consolidated net sales excluded the Chess King, Accessory Lady and Prints
Plus divisions after their respective dates of disposition in 1993. Adjusting
for these dispositions, consolidated net sales for the six months would have
increased 9.3% over the 1993 period.
For the first six months of 1994, the Company reported consolidated net
earnings of $43.1 million compared to consolidated net earnings of $52.8 million
for the 1993 period. Consolidated net earnings per share was $0.33 for the
current year period as compared to $0.43 per share last year.
(continued)
10
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
For the six months ended June 30, 1994, net sales for the prescription
drugs, health and beauty aids segment increased 9.7% over the prior year period
while same store sales increased 5.5%, as compared to an increase of 4.7% in
1993. Sales in 1994 benefited from improved customer traffic from the May 1993
promotion to re-introduce the renovated Peoples stores, improved front store
business and the continued growth of the pharmacy business, which offset the
negative impact of unfavorable weather conditions in the Northeast during the
first quarter. Gross margin as a percentage of net sales for the segment
declined due to an increase in the proportion of lower margined prescription
sales to total sales. This segment's share of consolidated net sales in the
first six months of 1994 and 1993 was 42.0% and 41.0%, respectively.
Net sales for the apparel segment increased 3.7% in the first six months of
1994 compared to the prior year period. Adjusting for the exclusion of Chess
King and Accessory Lady after their disposals, net sales for this segment would
have increased 10.3%. Same store sales increased 1.5% compared to a decrease of
3.3% in 1993. Moderate sales improvements were reported at Marshalls as it
continued to be adversely affected by competitive and promotional factors in the
apparel business, and from poor weather in January. Wilsons, however,
experienced positive results, primarily in its expanded accessories lines. Gross
margin for the segment as a percentage of net sales decreased due to higher
markdowns and the exclusion of higher margined businesses sold in 1993. For the
first half of 1994, this segment represented 30.0% of consolidated net sales as
compared to 31.0% in the same period last year.
The footwear segment experienced an increase in net sales of 5.9% for the
six months ended June 30, 1994 compared to the same period in 1993. This segment
reported a 1.0% increase in same store sales during the first six months of 1994
as compared to a 0.3% decrease for the comparable prior year period. Net sales
for the segment were positively impacted by favorable results at Meldisco in the
first quarter, which offset the disappointing performance of FootAction.
Additionally, Thom McAn saw positive results in its ongoing product lines which
have partially offset the impact of discontinuing its men's athletic and
children's lines. Gross margin as a percentage of net sales was impacted by
higher markdowns at Meldisco and FootAction. For the six month period of 1994,
this segment represented 16.9% of consolidated net sales, compared to 17.0% for
the first six months of 1993.
Net sales in the toys and household furnishings segment increased 7.4% in
the first six months of 1994 as compared to the prior year period. Adjusting for
the exclusion of Prints Plus after its date of disposition, net sales for this
segment would have increased 10.9% for the six months. Same store sales
increased 4.6% for the first half of 1994 compared to a decrease of 2.0% in the
first six months of last year. Segment results were impacted positively by
strong same store sales at Kay-Bee, largely attributable to strong sales of male
action figures and licensed product, increased availability of closeout
merchandise and the favorable impact of its repricing strategy. Linens 'n Things
continued to yield strong sales growth from the increased growth of its
superstore base and the continued expansion of its product offerings. Gross
margin as a percentage of net sales declined from the prior year due to higher
markdowns at Kay-Bee and changes in sales mix within the segment. This segment's
net sales for the first half of 1994 represented 11.1% of the consolidated total
as compared to 11.0% in 1993.
Cost of goods sold, buying and warehousing costs as a percentage of
consolidated net sales was 65.2% in the first six months of 1994, compared to
64.5% in 1993. The increase resulted primarily from a change in sales mix toward
lower margined categories, as well as increased markdowns.
Store operating, selling, general and administrative expenses were 30.7% of
consolidated net sales for the first six months of 1994 compared to 30.8% in the
same period last year. The achievement of favorable variances were due primarily
to more stringent management of variable expenses.
Depreciation and amortization expense as a percentage of consolidated net
sales was 2.1% for the first six months of 1994 as compared to 2.2% in the 1993
period, reflecting the lower store base resulting from our 1993 dispositions and
the leveraging of costs resulting from same store sales growth.
(continued)
11
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Net interest expense totalled $9.5 million for the first six months of 1994
as compared to $7.1 million in the first six months of 1993. The increase in
1994 reflected the higher level of short-term borrowings as well as increased
borrowing rates.
Minority interests in net earnings were 0.4% of consolidated net sales for
the first six months of both 1994 and 1993 and are based on the profitability of
the related operations.
The Company's effective tax rate for the six months was 27.6%, compared to
36.1% in the first six months of 1993. The lower effective tax rate in 1994 is
due to the relative mix of our businesses.
Financial Condition and Liquidity
- ---------------------------------
Inherent in the seasonality of the specialty retailing business are
cyclical buildups of inventory prior to peak selling periods, the more
significant of which are Christmas, Palm and Easter and Back-to-School. Although
the Company finances its growth in operations and working capital requirements
primarily through internally generated funds, short-term borrowings are also
used to finance these seasonal inventory buildups. The short-term borrowings
reach a peak in the Fall and are generally paid off with internally generated
funds by year end.
For the six months ended June 30, 1994, cash and cash equivalents decreased
$10.1 million to $70.9 million as compared to a decrease of $70.4 million to
$74.7 million for the first six months of 1993. The Company had short term
borrowings of $529.1 million outstanding at June 30, 1994 and $456.5 million at
June 30, 1993. The increase in the level of short-term borrowings was due
primarily to maintenance of higher inventories for new stores and an expansion
to larger store formats at several divisions.
Net accounts receivable decreased by $26.2 million for the six months ended
June 30, 1994 as compared to an increase of $2.9 million for the six months
ended June 30, 1993. The increase in 1993 reflected the $29.4 million note
received in connection with the sale of Chess King, while the 1994 decrease
reflected the sale of the note.
For the six months ended June 30, 1994, inventories increased $236.1
million to $2.1 billion. For the six months ended June 30, 1993, inventories
increased $91.8 million to $1.9 billion. The larger increase in 1994 reflected
the relatively higher stock levels required for the Company's larger store
formats and lower LIFO reserves offset by the benefits derived by inventory
management initiatives.
Prepaid expenses decreased $24.1 million in the first six months of 1994 as
compared to a decrease of $50.4 million in 1993. The larger decrease in 1993 was
due to the deferred tax effect of utilizing reserves established in connection
with the strategic realignment charge recorded in the fourth quarter of 1992.
The decrease in accounts payable and accrued expenses of $110.8 million for
the six months ended June 30, 1994, as compared to a decrease of $293.1 million
in 1993, was primarily due to the timing of payments and relative levels of
inventories maintained at each period end, as well as utilization in 1993 of
certain reserves established in connection with the 1992 strategic realignment
program.
Capital additions of $155.8 million and $151.0 million in the first six
months of 1994 and 1993, respectively, represented expenditures primarily for
improvements to new and existing leased store locations, store equipment,
information systems and distribution and office facilities.
12
<PAGE>
REVIEW BY INDEPENDENT AUDITORS
The June 30, 1994 and 1993 consolidated condensed financial statements included
in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick, independent
auditors, in accordance with established professional standards and procedures
for such a limited review.
The report of KPMG Peat Marwick, commenting on their review, is included herein
as Part I - Exhibit 1.
13
<PAGE>
Part 1-Exhibit 1
Independent Auditors' Report
The Board of Directors and Shareholders of
Melville Corporation:
We have reviewed the consolidated condensed balance sheets of Melville
Corporation and subsidiary companies as of June 30, 1994 and 1993, and the
related consolidated condensed statements of earnings for the three month and
six month periods ended June 30, 1994 and 1993, and the related consolidated
condensed statements of cash flows for the six month periods ended June 30, 1994
and 1993. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with general accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Melville Corporation and subsidiary
companies as of December 31, 1993 and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 10, 1994, except as to the
Subsequent Event note, which is as of March 1, 1994, we expressed an unqualified
opinion on those consolidated financial statements. Our report referred to above
contains an explanatory paragraph that states that the Company changed its
method of determining retail price indices used in the valuation of LIFO
inventories in 1993. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 1993, is
fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/S/KPMG Peat Marwick
New York, New York
July 26, 1994
14
<PAGE>
Part II. - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a)
EXHIBIT INDEX
Exhibit
11 Computation of Per Share Earnings
15 Letter re: Unaudited Interim Financial Information
b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended June 30, 1994.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MELVILLE CORPORATION
--------------------
(REGISTRANT)
/s/ ROBERT D. HUTH
------------------------
Robert D. Huth
Executive Vice President
and Chief Financial Officer
Date: August 12, 1994
15
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE
($ and shares in thousands, except per share data)
Exhibit 11
<TABLE>
Three Months Ended Three Months Ended
June 30, June 30,
1994 1993
---- ----
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Net earnings $45,602 $74,525
Less: Preferred dividends, net 4,319 3,915
------- -------
Net earnings used to calculate
primary earnings per share $41,283 $70,610
======= =======
Weighted average number of shares outstanding 105,447 104,994
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 103 275
------- -------
Weighted average number of shares used to
compute primary earnings per share 105,550 105,269
======= =======
Primary earnings per share $0.39 $0.67
======= =======
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net earnings $45,602 $74,525
Less: Preferred dividends 13 13
------- -------
Net earnings used to calculate fully diluted
earnings per share, before adjustments 45,589 74,512
Less: Adjustments resulting principally from the
assumed conversion of the Series One ESOP
Convertible Preference Stock, net of tax benefit 1,080 184
------- -------
Net earnings used to calculate fully diluted
earnings per share $44,509 $74,328
======= =======
Weighted average number of shares used to
compute primary earnings per share 105,447 104,994
Add: Weighted average shares of Series One
Convertible Preference Stock assuming
conversion 6,965 6,734
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 104 277
Add: Weighted average number of shares which
could have been issued upon conversion of
4 7/8% debentures 6 6
------- -------
Weighted average number of shares used to compute
fully diluted earnings per share 112,522 112,011
======= =======
Fully diluted earnings per share $0.40 $0.66
======= =======
</TABLE>
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE
($ and shares in thousands, except per share data)
Exhibit 11
<TABLE>
Six Months Ended Six Months Ended
June 30, June 30,
1994 1993
---- ----
<S> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Net earnings $43,097 $52,839
Less: Preferred dividends, net 8,639 7,830
------- -------
Net earnings used to calculate
primary earnings per share $34,458 $45,009
======= =======
Weighted average number of shares outstanding 105,404 104,888
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 100 360
------- -------
Weighted average number of shares used to
compute primary earnings per share 105,504 105,248
======= =======
Primary earnings per share $0.33 $0.43
======= =======
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net earnings $43,097 $52,839
Less: Preferred dividends 27 26
------- -------
Net earnings used to calculate fully diluted
earnings per share, before adjustments 43,070 52,813
Less: Adjustments resulting principally from the
assumed conversion of the Series One ESOP
Convertible Preference Stock, net of tax benefit 2,739 1,237
------- -------
Net earnings used to calculate fully diluted
earnings per share $40,331 $51,576
======= =======
Weighted average number of shares used to
compute primary earnings per share 105,404 104,888
Add: Weighted average shares of Series One
Convertible Preference Stock assuming
conversion 6,965 6,734
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 103 361
Add: Weighted average number of shares which
could have been issued upon conversion of
4 7/8% debentures 6 6
------- -------
Weighted average number of shares used to compute
fully diluted earnings per share 112,478 111,989
======= =======
Fully diluted earnings per share $0.36 $0.46
======= =======
</TABLE>
Exhibit 15
Melville Corporation
Rye, New York
Board of Directors:
Re: Registration Statements Numbers 33-40251, 33-17181 and 2-97913 on Form
S-8 and Numbers 33-62664 and 33-34946 on Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 26, 1994 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/S/ KPMG Peat Marwick
New York, New York
August 12, 1994
<PAGE>
