SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission File Number 1-1011
MELVILLE CORPORATION
(Exact name of registrant as specified in its charter)
New York 04-1611460
(State of incorporation) (IRS Employer Identification No.)
One Theall Road, Rye, NY 10580
(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 925-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
--------------------- ---------------------
Common stock (par value
$1 per share) New York Stock Exchange
4-7/8% Convertible Subordinated
Debentures due June 1, 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
Yes (No disclosures are contained herein) X No
---
Page 1 of Pages
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Exhibit Index on Pages 28-30
Page 1 of 2 page Cover Page
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As of March 1, 1995, the aggregate market value of the voting stock* held by
non-affiliates** which was computed by reference to the price at which the stock
was last traded was $3,382,598,081.
Number of shares outstanding of the issuer's Common Stock (par value $1 per
share) at March 1, 1995: 104,808,840.
Documents Incorporated by Reference
l. Annual Report to Shareholders for the year ended December 31, 1994: Part I,
Item 1; Part II, Items 5, 6, 7 and 8; and Part IV, Item 14.
2. Proxy Statement dated March 7, 1995 issued in connection with the annual
meeting of shareholders: Part III, Items 10, 11, 12 and 13.
* Does not include 6,368,249 outstanding shares of Series One ESOP Convertible
Preference Stock ("ESOP Preference Stock"). As of March 1, 1995, each share
of ESOP Preference Stock is entitled to one vote per share on all matters
submitted to a vote of the holders of Common Stock.
** Only stock held by directors and officers is excluded.
Page 2 of 2 page Cover Page
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PART I
Item 1. Business
Melville Corporation, a New York corporation (in this Item 1 called the
"Company"), is one of the largest diversified specialty retailers in the United
States. On December 31, 1994, the Company, through its subsidiaries (which
together with the Company throughout this Item 1 are collectively called the
"Companies"), operated a total of 7,378 retail stores and leased departments
throughout the United States, Puerto Rico, the U.S. Virgin Islands, Canada, the
United Kingdom, the Czech Republic, Slovakia, Mexico and Singapore. During 1994
the Companies also manufactured men's and women's footwear in two factories and
furniture in seven factories.
The Companies market products in chains of specialty retail stores
operating under various trade names. Prescription drugs, health and beauty care
items are sold in chains of stores operated under the "CVS" trade name. Apparel
and accessories are sold in chains of stores under the "Marshalls", "Wilsons
Suede & Leather", "Wilsons The Leather Experts", "Bermans", "Bermans The Leather
Experts", "Pelle Cuir", "Tannery West", "Snyder Leather Outlet", "Georgetown
Leather Design" and "Bob's" trade names. Footwear is sold in chains of stores
operated under the "FOOTACTION USA", "FOOTACTION For Kids", "Thom McAn" and
"B.O.Q." trade names and in leased departments in Kmart discount department
stores and Pay Less Drug stores. Toy and hobby products are sold in chains of
stores operating under the "Kay-Bee Toys", "Toy Works", "K & K Toys" and "Circus
World" trade names. Domestics are sold in a chain of stores operated under the
"Linens 'n Things" trade name.
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Furniture is sold in a chain of stores under the "This End Up" and "Wood's End"
trade names.
In general, the retailing business is seasonal in nature with each
particular business of the Company affected, to varying degrees, by certain peak
selling periods. The peak selling periods are characterized by inventory
build-ups prior to such periods. The build-ups are financed, in part, with the
issuance of commercial paper and bank loan participation notes. To maintain
financial flexibility, the Company also has on file with the Securities and
Exchange Commission a shelf registration statement for the issuance of up to
$300 million in debt securities, including medium-term notes. No debt securities
have been issued to date. The Company is currently exploring several
alternatives for managing its financing requirements and the costs thereof.
The Christmas holiday is the most significant seasonal selling period for
the Company overall and the peak selling period for its toy and leather apparel
businesses. The peak selling periods, other than the Christmas holiday, for the
Company's non-leather apparel and footwear businesses coincide with the Easter
holiday and the opening of school in the fall. Competition is based upon such
factors as price, style, quality and design of product and the layout and
location of stores.
The Company's principal office is located in Rye, New York. As of December
31, 1994, the Companies had approximately 117,000 full and part-time associates.
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BUSINESS SEGMENT INFORMATION
The Company is principally a specialty retailer conducting business in four
major segments:
- Prescription drugs, health and beauty care retailing.
- Apparel retailing, which includes men's and women's specialty and
leather apparel, and brand name and private label apparel for men,
women and children.
- Footwear, which includes retailing of both discount and popular-priced
shoes; retailing of brand name shoes and athletic footwear for men,
women and children.
- Toys and home furnishings, which include retailing of toys, domestics
and furniture (as well as furniture manufacturing).
The financial information concerning industry segments required by Item
101(b) of Regulation S-K is set forth on page 47 of the Company's Annual Report
to Shareholders for the year ended December 31, 1994, and is incorporated herein
by reference.
PRESCRIPTION DRUGS, HEALTH AND BEAUTY CARE RETAILING
On December 31, 1994, the Companies operated 1,328 prescription drugs,
health and beauty care stores in 15 states and the District of Columbia under
the name "CVS" 1,137 of which have pharmacies. Net sales for these stores for
1994 represented approximately 38% of the Companies' consolidated net sales.
These stores are considered "destination" stores and are located primarily
in "strip" shopping centers and freestanding units. In the prescription drugs,
health and beauty care retailing business, the Company counts itself among the
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largest retailers in terms of number of stores in its primary marketing
territories, which is the mid-Atlantic and Northeast United States. The monthly
business periodical entitled "Chain Drug Review" has ranked CVS fourth in number
of stores and fifth in dollar volume and among the top ten drug store chains in
the United States based upon dollar volume and store count. These stores also
compete with general merchandise stores, supermarkets and mail order pharmacies.
In 1994, the Company started its PharmaCare division, which manages
pharmacy services and managed care drug programs. PharmaCare currently manages
prescription drug care for approximately one million people.
APPAREL RETAILING
On December 31, 1994, the Companies operated 484 off-price quality brand
name family apparel stores in 40 states and Puerto Rico under the name
"Marshalls". These stores are located primarily in "strip" shopping centers in
which Marshalls is an "anchor" tenant. Marshalls' net sales for 1994 represented
approximately 25% of the Companies' consolidated net sales.
On December 31, 1994, the Companies operated 628 men's and women's leather
and suede apparel and accessory stores, which are located primarily in regional
shopping malls, in 46 states, the District of Columbia and the United Kingdom
under the names "Wilsons Suede & Leather", "Wilsons The Leather Experts",
"Tannery West", "Bermans The Leather Experts", "Bermans", "Snyder Leather
Outlets", "Pelle Cuir" and "Georgetown Leather Design". Net sales for 1994 in
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these stores represented approximately 4% of the Companies' consolidated net
sales.
On December 31, 1994, the Companies operated 20 stores selling casual
clothing and footwear for the entire family under the name "Bob's", principally
in "strip" shopping centers located in Connecticut, Massachusetts, New York, New
Jersey and Rhode Island. Net sales at Bob's stores for 1994 represented
approximately 3% of the Companies' consolidated net sales.
In the apparel retailing business, the Company believes it has a
significant presence in the markets for the products which it carries; however,
such products represent only a small portion of the total apparel market.
FOOTWEAR
On December 31, 1994, the Companies operated 2,778 leased footwear
departments, 439 stores under the names "FOOTACTION USA" and "FOOTACTION For
Kids" and 323 stores under the names "Thom McAn" and "B.O.Q.". Collectively,
these leased departments and retail stores are located in all 50 states, Puerto
Rico, the U.S. Virgin Islands, the Czech Republic, Slovakia, Mexico and
Singapore.
Each of the leased departments is operated by the Company's Meldisco
division which sells footwear for the entire family. All but 409 of the leased
departments operated during the fiscal year ended December 31, 1994 were located
in Kmart discount department stores in the United States, Puerto Rico, the Czech
Republic, Slovakia, Mexico and Singapore. These 409 leased departments were
located in Pay Less Drug Stores, which are owned by Pay Less Drug Stores, Inc.
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(formerly known as Pay Less Drug Stores Northwest, Inc.) ("Pay Less").
Pursuant to an agreement between the Company and Kmart Corporation ("Kmart"
then known as S.S. Kresge Company) entered into as of January 1, 1975, and an
agreement between the Company and Pay Less dated October 10, 1988, the Company
has the exclusive right to operate the footwear departments in Kmart and Pay
Less stores. All license agreements relating to such leased departments have
terms of 25 years, subject to certain performance standards. Rental payments
under all such license agreements are based on a percentage of sales, with
additional payments to be made under certain of the license agreements with
Kmart based on profits. The Company has a 51% equity interest, and Kmart has a
49% equity interest, in all the subsidiaries which operate leased departments in
Kmart stores, with the exception of 38 such subsidiaries in which the Company
has a 100% equity interest. The Company has a 100% equity interest in all the
subsidiaries which operate leased departments in Pay Less Drug Stores. Aggregate
net sales for 1994 of Meldisco leased departments represented approximately 11%
of the Companies' consolidated net sales.
The agreement with Pay Less giving the Company the exclusive right to
operate footwear departments in all newly opened stores expires in October,
2013. The agreement with Kmart giving the Company the exclusive right to operate
footwear departments in all newly opened stores expires in May, 1995, by which
time the Company expects a new agreement will be in place.
Footaction stores are located primarily in regional shopping malls. These
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stores specialize in brand name casual and athletic footwear and related apparel
for the entire family. Footaction's net sales for 1994 represented approximately
3% of the Companies' consolidated net sales.
A majority of the Thom McAn stores are also located in regional shopping
malls and substantially all of such stores sell footwear and related items for
men and women. Excluded from the Thom McAn chain were stores designated to be
closed or redeployed under the Company's strategic realignment program announced
in 1992. Of the stores excluded, 95 were closed or redeployed in 1994. Thom
McAn's net sales for 1994 represented approximately 2% of the Companies'
consolidated net sales.
The Companies' footwear retailing is primarily in the discount and
popular-price categories. However, with the growth of its Footaction division,
the Company continues to increase its presence in brand name casual and athletic
footwear.
In the footwear retailing business the Companies, through their retail
stores and leased departments, compete with footwear chain store operators and
many other types of footwear retailers, e.g., general merchandise stores,
traditional department stores, mail order businesses and apparel stores.
According to research data provided to the Company by Footwear Market Insights,
a management consulting and marketing research company specializing in footwear,
the seven largest footwear chain store and leased department operators in the
United States, ranked according to the number of pairs of footwear sold and
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number of retail outlets, account for approximately [40.1%] of total footwear
pair sales, and the Companies are among such seven largest operators.
Manufacturing
As of July, 1994, the Company ceased operating its remaining two factories
in the Southeast United States which produced shoes and contained facilities for
product development, product testing and quality control. During 1994, the
manufactured footwear represented an insignificant percentage of the total
footwear sold by the Companies.
TOYS AND HOME FURNISHINGS
On December 31, 1994, the Companies operated 996 toy and hobby stores in
all 50 states and Puerto Rico under the names "Kay-Bee Toys", "Toy Works",
"Circus World" and "K & K Toys". The "Kay-Bee Toys", "Circus World" and "K & K
Toys" stores are located primarily in regional shopping malls. The "Toy Works"
stores are located primarily in "strip" shopping centers and freestanding units.
Excluded from operating results were stores that the Company designated to close
or not renew under its strategic realignment program announced in 1992. Of the
stores excluded, 61 were closed in 1994. Net sales in toy and hobby stores for
1994 represented approximately 9% of the Companies' consolidated net sales.
On December 31, 1994, the Companies operated 145 quality brand name linens,
towels, bath and other household items stores, which are located primarily in
"strip" shopping centers in 27 states under the name "Linens 'n Things". Linens
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'n Things' net sales for 1994 represented approximately 4% of the Companies'
consolidated net sales.
On December 31, 1994, the Companies operated 237 stores retailing a
distinctive line of casual furniture and coordinated accessories for residential
and commercial use, located primarily in regional shopping malls in 34 states
and Canada, under the names "This End Up" and "Wood's End". Net sales of
furniture for 1994 represented approximately 1% of the Companies' consolidated
net sales.
In the toy retailing business, the Company is among the largest toy and
hobby chain store operators in the United States in terms of sales, as well as
number of retail outlets. Based upon sales volume, the business periodical
"Discount Store News" has ranked Kay-Bee among the top toy specialty chains in
the United States.
In the home furnishings retailing business, the Company believes itself to
be a significant factor in the markets for the products which it carries. Based
on total revenues, This End Up has been ranked by "Furniture Today", a weekly
business periodical, the 19th largest home furnishing retailer in the United
States.
Manufacturing
During 1994, the Company, through This End Up Furniture Company,
manufactured a distinctive line of casual furniture in seven factories located
in the Southeast United States. Approximately 99% of the furniture manufactured
is sold through the Company's This End Up division. The Company believes that
these factories have the capacity to supply all of the sales volume requirements
of its "This End Up" and "Wood's End" retail stores and currently these
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factories supply substantially all of such requirements.
This End Up Furniture Company manufactures a large portion of its furniture
from southern yellow pine, which is in plentiful supply in the Southeastern
United States. Southern yellow pine is a renewable resource and most producers
have reforestation programs in effect.
ACQUISITIONS
During 1994, the Company acquired the assets of 11 prescription drugs,
health and beauty care stores, 12 apparel stores and 3 stores selling branded
athletic footwear and apparel.
Item 2. Properties
The registrant and its subsidiaries lease various retail stores and
warehouse, plant and office facilities. Most of these leases contain initial
terms ranging from 5 to 25 years and many have options for extension beyond the
initial term ranging from 5 to 15 years. Retail stores and office facilities are
leased in nearly all cases.
In the fiscal year ended December 31, 1994, the registrant and its
subsidiaries operated 47 distribution centers, located in 18 states, containing
an aggregate of approximately 9,468,000 square feet. All such distribution
centers are leased with the exception of 14 distribution centers containing an
aggregate of approximately 5,054,000 square feet which are owned by the
registrant or one of its subsidiaries. Fifteen distribution centers (comprising
approximately 3,324,000 square feet) are used in the prescription drugs, health
and beauty care business; seven distribution centers (comprising approximately
2,911,000 square feet) are used in the apparel businesses; seven distribution
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centers (comprising approximately 1,542,000 square feet) are used in the
footwear businesses; and 18 distribution centers (comprising approximately
1,691,000 square feet) are used in the toys and home furnishings businesses.
During the fiscal year ended December 31, 1994, the registrant and its
subsidiaries operated nine factories, all of which were located in North
Carolina. Two were footwear factories that were closed as of July, 1994 and the
property has since been sold. Seven are furniture factories with the total
capacity to produce approximately 1,092,000 pieces of furniture annually. The
registrant or one of its subsidiaries own all such factories remaining in
operation at the end of the year.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the registrant or any of
its subsidiaries is a party or of which any of its or their property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ending December 31, 1994.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following is included as an unnumbered item in Part I of this report
since the registrant did not furnish such information in its definitive proxy
statement dated March 7, 1995.
Date Date First
Appointed Appointed an
to Present Officer of
Name/Office Age Office the Registrant
----------- --- ---------- --------------
James E. Alward 51 3/17/92 3/17/92
Vice President
Norman Axelrod 42 3/07/88 3/07/88
Vice President
(President and
Chief Executive
Officer of
Linens 'n Things)
Gary L. Crittenden 41 1/11/95 1/11/95
Senior Vice President
and Acting Chief
Financial Officer
Kenneth A. DellaRocco 42 7/13/94 7/13/94
Vice President
Warren D. Feldberg 45 10/18/91 10/18/91
Vice President
(Chairman and Chief
Executive Officer
of Marshalls)
Michael A. Friedheim 51 1/01/94 7/14/82
Vice President
(Chairman and Chief
Executive Officer of
Bob's)
Philip C. Galbo 44 7/13/94 8/01/89
Vice President and
Treasurer
Stanley P. Goldstein 60 1/01/87 4/13/71
Chairman of the
Board and Chief
Executive Officer
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Date Date First
Appointed Appointed an
to Present Officer of
Name/Office Age Office the Registrant
----------- --- ---------- --------------
Thomas E. Harms 48 3/10/94 3/10/94
Vice President
Robert G. House 48 9/11/91 9/11/91
Vice President
Ann Iverson 51 7/13/94 7/13/94
Vice President
(President and Chief
Executive Officer of
Kay-Bee)
Daniel B. Katz 49 2/19/91 3/12/86
Senior Vice
President (President
of Melville Realty
Company, Inc.)
Peggy Kelston 45 12/7/94 12/7/94
Vice President
Robert A. Kemeny 39 7/13/94 7/13/94
Vice President
(President and Chief
Executive Officer of
This End Up)
William C. Kingsford 48 3/12/86 7/13/79
Vice President
Jerald L. Maurer 52 1/01/94 1/01/94
Senior Vice
President
Larry A. McVey 53 3/14/84 3/14/84
Vice President
(President and Chief
Executive Officer of
Thom McAn)
John I. Mitchell, Jr. 55 10/12/88 10/12/88
Vice President and
Chief Information
Officer
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Date Date First
Appointed Appointed an
to Present Officer of
Name/Office Age Office the Registrant
----------- --- ---------- --------------
Ralph T. Parks 49 3/10/94 3/10/94
Vice President
(President and Chief
Executive Officer of
Footaction)
Jerald S. Politzer 49 10/09/91 6/21/89
Executive Vice
President
Arthur V. Richards 56 9/13/89 4/12/77
Vice President
and Corporate Secretary
J. M. Robinson 48 7/13/88 7/13/88
Vice President
(President and Chief
Executive Officer of
Meldisco)
Harvey Rosenthal 52 1/01/94 10/17/84
President and
Chief Operating
Officer
Thomas M. Ryan 42 1/01/94 1/01/94
Vice President
(President and Chief
Executive Officer of CVS)
Joel N. Waller 54 3/11/87 3/11/87
Vice President
(Chairman and Chief
Executive Officer of
Wilsons)
Jeffery A. Warzel 38 1/11/95 1/11/95
Vice President
In each case the term of office extends to the date of the board of
directors meeting following the next annual meeting of shareholders of the
registrant. In addition to the office(s) which they hold in the registrant as
shown above, each of the individuals listed (with the exception of Messrs.
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Crittenden, Harms, House, Kingsford, Maurer, Warzel and Ms. Kelston) hold
various offices in certain subsidiaries of the registrant. Previous positions
and responsibilities held by each of the above officers with the registrant and
for each of the above officers who have not held the same office(s) with the
same responsibilities for more than the past five years, are indicated below:
James E. Alward - Director of Taxation (January, 1979 to Present) of
the registrant.
Gary L. Crittenden - Executive Vice President and Chief Financial
Officer (October, 1992 to December, 1994) and Senior Vice
President (December, 1990 to October, 1992) of Filene's Basement;
Senior Partner (1979 to December, 1990) of Bain & Company.
Kenneth A. DellaRocco - Director of Legal Affairs and Counsel
(September, 1990 to July, 1994) and Director of Special Projects
and Counsel (March, 1990 to September, 1990) of the registrant.
Warren D. Feldberg - President (January, 1991 to November, 1991) of
Target Stores, a division of Dayton Hudson Corporation, Executive
Vice President (December, 1988 to January, 1991) of Target
Stores.
Michael A. Friedheim - Executive Vice President (February, 1986 to
January, 1994) of the registrant.
Philip C. Galbo - Treasurer (July, 1989 to Present) of the registrant.
Thomas E. Harms - Vice President Human Resources (July, 1993 to March,
1994) and Director Human Resources (September, 1990 to July,
1993) of the CVS division of the registrant; Director of
Personnel (August, 1988 to August, 1990) of Marshall Field's.
Robert G. House - Consultant (January, 1988 to July, 1991) Temple,
Barker & Sloane, general management consultants.
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Ann Iverson - Chief Executive Officer (1989 to July, 1994) of
Mothercare U.K., a division of Storehouse PLC.
Daniel B. Katz - Vice President (March, 1986 to February, 1991) of the
registrant; President (March, 1978 to Present) of Melville Realty
Company, Inc., a subsidiary of the registrant.
Robert A. Kemeny - Independent Salesman (January, 1991 to July, 1994);
President (September, 1988 to January, 1991) of Barker Brothers
Furniture.
Peggy Kelston - Vice President Human Resources (July, 1989 to
September, 1994) of Calbro Corp.
Jerald L. Maurer - Corporate Vice President of Strategic Human
Resource Management (January, 1992 to January, 1994); of Aetna
Life and Casualty Company; Vice President of Human Resources
(January, 1991 to January, 1992) of Medstat Systems, Inc.; Senior
Vice President of Human Resources (1988 to January, 1991) of John
Wiley & Sons, Inc.
Ralph T. Parks - President of the Footaction division of the
registrant (November, 1991 to Present); Executive Vice President
and Chief Operating Officer (March, 1987 to November, 1991) of
Footaction, Inc.
Jerald S. Politzer - Group Vice President (June, 1989 to October,
1991) of the registrant.
Arthur V. Richards - Secretary (April, 1977 to Present), General
Counsel (September, 1989 to October, 1990) of the registrant.
Harvey Rosenthal - President and Chief Executive Officer (October,
1984 to January, 1994) of the CVS division of the registrant.
Thomas M. Ryan - Executive Vice President (January, 1990 to January,
1994) of the CVS division of the registrant.
Jeffery A. Warzel - Director of Process Improvement (September, 1992
to January, 1995) of the registrant; Senior Manager (April, 1988
to August, 1992) of Deloitte & Touche LLP.
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Part II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters
The number of holders of the registrant's Common Stock, based upon the
number of record holders, was approximately 7,200 as of December 31, 1994. All
other information required by this item is included in the registrant's Annual
Report to Shareholders for the year ended December 31, 1994 on pages 1 and 46
and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1994 on page 48
and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1994 on pages 30
through 33 and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1994 on pages 35
through 47, and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
During the registrant's two most recent fiscal years or any subsequent
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interim period, no event occurred which would require disclosure under this
item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the executive officers is furnished under the heading
"EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this report since the
registrant did not furnish such information in its definitive proxy statement
dated March 7, 1995.
The other information required by this item is included in the registrant's
definitive proxy statement dated March 7, 1995 on pages 1 through 4 and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is included in the registrant's
definitive proxy statement dated March 7, 1995 on pages 5 through 11 and pages
14 and 15 and is incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
The information required by this item is included in the registrant's
definitive proxy statement dated March 7, 1995 on pages 1 through 5 and is
incorporated herein by reference.
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Item 13. Certain Relationships and Related Transactions
No information is required to be reported by this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) Documents filed as part of this report:
l. and 2. Financial Statements and Financial Statement Schedules.
The consolidated financial statements of Melville Corporation and its
subsidiary companies incorporated herein by reference to the Annual Report to
Shareholders for the fiscal year ended December 31, 1994 and the related
consolidated financial statement schedule are set forth in the index to
consolidated financial statements and consolidated schedules on page 27 hereof.
3. Exhibits
(a) The Exhibits filed as part of this report are listed below:
Exhibit
Table
Number:
------
3 (a) Restated Certificate of Incorporation, as amended as of April 18, 1990
(incorporated by reference to Exhibit 3 filed with the
registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1990).
3 (b) By-Laws, as amended through March 8, 1995.
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Exhibit
Table
Number:
-------
4 No instrument which defines the rights of holders of long and
intermediate debt of the registrant and its
subsidiaries is filed herewith pursuant to Regulation
S-K, Item 601(b)(4)(iii)(A) other than the June 23,
1989 amendment to the Restated Certificate of
Incorporation defining the rights of the holders of the
Series One ESOP Convertible Preference Stock (see above
exhibit table number 3(a)). The registrant hereby
agrees to furnish a copy of any such instrument to the
Securities and Exchange Commission upon request.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10 (iii) (A) (i) 1973 Stock Option Plan (incorporated by reference to
Exhibit (10) (iii) (A) (i) to the registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1987).
(ii) 1987 Stock Option Plan (incorporated by reference to
Exhibit (10) (iii) (A) (iii) to the registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1987).
(iii) 1989 Directors Stock Option Plan (incorporated by
reference to Exhibit B to the registrant's
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Exhibit
Table
Number:
-------
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).
(iv) Melville Corporation Omnibus Stock Incentive Plan
(incorporated by reference to Exhibit B to the
registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989).
(v) Directors Retirement Plan (incorporated by reference to
Exhibit 10(iii)(A)(vi) to registrant's Annual Report on
Form 10-K for year ended December 31, 1992).
(vi) Profit Incentive Plan of Melville Corporation
(incorporated by reference to Exhibit A to registrant's
definitive Proxy Statement dated March 14, 1994).
(vii) Supplemental Retirement Plan for Select Senior
Management of Melville Corporation as amended through
May 12, 1989.
(viii) Income Continuation Policy for Select Senior
Executives of Melville Corporation as amended through
May 12, 1988.
(ix) Description of Agreement between Jerald L. Maurer and the
registrant.
(x) Description of Agreement between Harvey Rosenthal and the
registrant.
23
<PAGE>
Exhibit
Table
Number:
-------
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
13 Annual Report to Shareholders for the year ended December
31, 1994. (Except for the portions incorporated herein
by reference, such report is furnished for the
information of the SEC and is not deemed "filed" as
part of this Form 10-K report.)
22 Subsidiaries of the registrant.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed in the last fiscal quarter ending
December 31, 1994.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /S/ ARTHUR V. RICHARDS
-----------------------------------------
Arthur V. Richards
Vice President and Secretary
March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has also been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board and
Director (Chief Executive
/S/ STANLEY P. GOLDSTEIN Officer) March 29, 1995
-----------------------------
(Stanley P. Goldstein)
Senior Vice President and
Acting Chief Financial
/S/ GARY L. CRITTENDEN Officer March 29, 1995
-----------------------------
(Gary L. Crittenden)
/S/ HYMAN L. BATTLE, JR. Director March 29, 1995
-----------------------------
(Hyman L. Battle, Jr.)
/S/ ALLAN J. BLOOSTEIN Director March 29, 1995
-----------------------------
(Allan J. Bloostein)
/S/ W. DON CORNWELL Director March 29, 1995
-----------------------------
(W. Don Cornwell)
/S/ JOHN J. CREEDON Director March 29, 1995
-----------------------------
(John J. Creedon)
/S/ WILLIAM H. JOYCE Director March 29, 1995
-----------------------------
(William H. Joyce)
25
<PAGE>
Signature Title Date
--------- ----- ----
/S/ MICHAEL H. JORDAN Director March 29, 1995
-----------------------------
(Michael H. Jordan)
/S/ TERRY R. LAUTENBACH Director March 29, 1995
----------------------------
(Terry R. Lautenbach)
/S/ THEODORE LEVITT Director March 29, 1995
----------------------------
(Theodore Levitt)
/S/ DONALD F. MCCULLOUGH Director March 29, 1995
----------------------------
(Donald F. McCullough)
President, Chief
Operating Officer
/S/ HARVEY ROSENTHAL and Director March 29, 1995
----------------------------
(Harvey Rosenthal)
/S/ IVAN G. SEIDENBERG Director March 29, 1995
----------------------------
(Ivan G. Seidenberg)
/S/ PATRICIA CARRY STEWART Director March 29, 1995
----------------------------
(Patricia Carry Stewart)
/S/ M. CABELL WOODWARD, JR. Director March 29, 1995
----------------------------
(M. Cabell Woodward, Jr.)
26
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Index to Consolidated Financial Statements and Schedules
The consolidated financial statements of Melville Corporation and
Subsidiary Companies together with the report on such consolidated financial
statements of KPMG Peat Marwick LLP dated February 16, 1995, which appear on the
pages listed below of the 1994 Annual Report to shareholders, are incorporated
by reference in this Annual Report on Form 10-K.
Page Number
in 1994
Annual Report
to Shareholders
---------------
Independent Auditors' Report ................................. 34
Consolidated Statements of Earnings for the years
ended December 31, 1994, 1993 and 1992 .................... 35
Consolidated Balance Sheets as of December 31,
1994 and 1993 ............................................. 36-37
Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1994,
1993 and 1992 ............................................. 38
Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992 .............. 39
Notes to Consolidated Financial Statements ................... 40-47
Included in Part IV of this report: Page
----
Consent of Independent Auditors
for Melville Corporation
and Subsidiary Companies .................................. F-1
Independent Auditors' Report on Consolidated
Financial Statement Schedule of Melville Corporation
and Subsidiary Companies .................................. F-2
Consolidated Financial Statement Schedule of Melville
Corporation and Subsidiary Companies for the
years ended December 31, 1994, 1993 and 1992:
VIII - Valuation and Qualifying Accounts ............. S-1
Schedules not included above have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
27
<PAGE>
INDEX TO EXHIBITS
Exhibit
Table
Number:
-------
3 (a) Restated Certificate of Incorporation, as amended as of
April 18, 1990 (incorporated by reference to Exhibit 3 filed
with the registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1990).
3 (b) By-Laws, as amended through March 8, 1995.
4 No instrument which defines the rights of holders of long
and intermediate debt of the registrant and its subsidiaries
is filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A) other than the June 23, 1989 amendment to
the Restated Certificate of Incorporation defining the
rights of the holders of the Series One ESOP Convertible
Preference Stock (see above exhibit table number 3(a)). The
registrant hereby agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon
request.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10 (iii)(A) (i) 1973 Stock Option Plan (incorporated by reference to
Exhibit (10) (iii) (A) (i) to the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987).
(ii) 1987 Stock Option Plan (incorporated by
28
<PAGE>
Exhibit
Table
Number:
-------
reference to Exhibit (10) (iii) (A) (iii) to the
registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987).
(iii) 1989 Directors Stock Option Plan (incorporated by
reference to Exhibit B to the registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988).
(iv) Melville Corporation Omnibus Stock Incentive Plan
(incorporated by reference to Exhibit B to the registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989).
(v) Directors Retirement Plan (incorporated by reference to
Exhibit 10(iii)(A)(vi) to registrant's Annual Report on Form
10-K for year ended December 31, 1992).
(vi) Profit Incentive Plan of Melville Corporation
(incorporated by reference to Exhibit A to registrant's
definitive Proxy Statement dated March 14, 1994).
(vii) Supplemental Retirement Plan for Select Senior
Management of Melville Corporation as amended through May
12, 1989.
29
<PAGE>
Exhibit
Table
Number:
-------
(viii) Income Continuation Policy for Select Senior
Executives of Melville Corporation as amended through May
12, 1988.
(ix) Description of Agreement between Jerald L. Maurer and
the registrant.
(x) Description of Agreement between Harvey Rosenthal and
the registrant.
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
13 Annual Report to Shareholders for the year ended December
31, 1994. (Except for the portions incorporated herein by
reference, such report is furnished for the information of
the SEC and is not deemed "filed" as part of this Form 10-K
report.)
22 Subsidiaries of the registrant.
27 Financial Data Schedule.
30
<PAGE>
[Letterhead of KPMG Peat Marwick LLP]
Consent of Independent Auditors
The Board of Directors and Shareholders
Melville Corporation:
We consent to incorporation by reference in the 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 of Melville Corporation and subsidiary companies of our report dated
February 16, 1995, relating to the consolidated balance sheets of Melville
Corporation and subsidiary companies as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1994, and
related financial statement schedule, which report appears in the December 31,
1994 annual report on Form 10-K of Melville Corporation and subsidiary
companies.
Our reports refer to the adoption of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1992 and to a change in the
method of determining retail price indices used in the valuation of LIFO
inventories in 1993.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
New York, New York
March 29, 1995
F-1
<PAGE>
[Letterhead KPMG Peat Marwick LLP]
Independent Auditors' Report
The Board of Directors and Shareholders
Melville Corporation:
Under the date of February 16, 1995, we reported on the consolidated balance
sheets of Melville Corporation and subsidiary companies as of December 31, 1994
and 1993, and related consolidated statements of earnings, shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1994, as contained in the 1994 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1994. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed on page 44 of the Annual Report to Shareholders, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1992. Also, as discussed on
page 41, the Company changed its method of determining retail price indices used
in the valuation of LIFO inventories in 1993.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
New York, New York
February 16, 1995
F-2
<PAGE>
Schedule VIII
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1993 and 1992
($ in Thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged Balance at
Description Beginning of Year to Costs and Expenses Deductions (1) End of Year
----------- ----------------- --------------------- -------------- -----------
<S> <C> <C> <C> <C>
Accounts Receivable:
Allowance for Doubtful Accounts:
Year Ended December 31, 1994 $32,534 $14,484 $28,160 $18,858
======= ======= ======= =======
Year Ended December 31, 1993 $25,131 $23,173 $15,770 $32,534
======= ======= ======= =======
Year Ended December 31, 1992 $21,717 $12,087 $ 8,673 $25,131
======= ======= ======= =======
</TABLE>
(1) Write-offs, net of recoveries
S-1
Exhibit 3(b)
MELVILLE CORPORATION
-------------
By-Laws
as amended to
March 8, 1995
1
<PAGE>
BY-LAWS
OF
MELVILLE CORPORATION
-----------------
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of the
corporation, for the purpose of electing Directors and for the transaction of
such other business as may be brought before the meeting, shall be held at the
principal office of the corporation, or at such other place within or without
the State of New York stated in the notice of the meeting as the Board of
Directors may determine, on the second Tuesday of April of each year (unless
such day shall be a legal holiday, in which case the annual meeting shall be
held on the next succeeding day not a legal holiday), or on such other day in
the month of April as the Board of Directors may determine, at 10:00 o'clock in
the forenoon, New York City time, or at such other hour stated in the notice of
the meeting as the Board of Directors may determine.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders other
than those regulated by statute may be held whenever called in writing by the
Chairman of the Board of Directors, the President or by vote of a majority of
the Board of Directors then holding office.
Special meetings shall be held at such place within or without the State of
New York as is specified in the call thereof.
SECTION 3. NOTICE OF MEETING; WAIVER. Unless otherwise required by
statute, the notice of every meeting of the shareholders shall be in writing and
signed by the Chairman of the Board of Directors, the President or a Vice-
President or the Secretary or an Assistant Secretary, and shall state the time
when and the place where it is to be held, and a copy thereof shall be served,
either personally or by mail, upon each shareholder of record entitled to vote
at such meeting, not less than ten nor more than fifty days before the meeting.
If the meeting to be held is other than the annual meeting of shareholders, the
notice shall also state the purpose or purposes for which the meeting is called
and shall indicate that it is being issued by or at the direction of the
person or persons calling the meeting. If, at any meeting, action is proposed to
be taken which would, if taken, entitle shareholders to receive payment for
their shares pursuant to Section 623 of the Business Corporation Law, the notice
of such meeting shall include a statement of that purpose and to that effect.
If the notice is mailed, it shall be directed to a shareholder at his address
as it appears on the record of shareholders unless he shall have filed with the
Secretary of the corporation a written request that notices intended for him be
mailed to some other address, in which case it shall be mailed to the address
designated in such request.
2
<PAGE>
Notice of meeting need not be given to any shareholder who submits a signed
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of a shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
SECTION 4. QUORUM. At any meeting of the shareholders the holders of a
majority of the shares entitled to vote and being present in person or
represented by proxy shall constitute a quorum for all purposes, unless the
representation of a different number shall be required by law or by another
provision of these by-laws, and in that case the representation of the number so
required shall constitute a quorum.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or represented by proxy at the meeting may adjourn from
time to time without further notice other than by an announcement made at the
meeting. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 5. ORGANIZATION. The Chairman of the Board of Directors or, in
his absence, the President or, in his absence, any Executive Vice President,
Senior Vice President or Vice President in the order of their seniority or in
such other order as may be designated by the Board of Directors, shall call
meetings of the shareholders to order and shall act as chairman of such
meetings. The Board of Directors or the Executive Committee may appoint any
shareholder to act as chairman of any meeting in the absence of any of such
officers and in the event of such absence and the failure of such board or
committee to appoint a chairman, the shareholders present at such meeting may
nominate and appoint any shareholder to act as chairman.
The Secretary of the corporation, or, in his absence, an Assistant
Secretary, shall act as secretary of all meetings of shareholders, but, in the
absence of said officers, the chairman of the meeting may appoint any person to
act as secretary of the meeting.
SECTION 6. VOTING. At each meeting of the shareholders every
shareholder of record having the right to vote shall be entitled to vote either
in person or by proxy.
SECTION 7. INSPECTORS OF ELECTION. The Board of Directors, in advance
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat, shall appoint one or more inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Inspectors shall be sworn.
3
<PAGE>
SECTION 8. CONDUCT OF ELECTION. At each meeting of the shareholders,
votes, proxies, consents and ballots shall be received, and all questions
touching the qualification of voters, the validity of proxies, and the
acceptance or rejection of votes, shall be decided by the Inspectors of
Election.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of the directors of the
corporation shall be fifteen [which number will be reduced to twelve effective
at the annual meeting of shareholders on April 11, 1995.
SECTION 2. TERM AND VACANCIES. Directors shall be elected at the annual
meeting of shareholders to hold office until the next annual meeting and until
their respective successors have been duly elected and have qualified.
Vacancies in the Board of Directors occurring between annual meetings, from
any cause whatsoever including vacancies created by an increase in the number of
directors, shall be filled by the vote of a majority of the remaining directors,
though less than a quorum.
Directors need not be shareholders.
SECTION 3. GENERAL POWERS OF DIRECTORS. The business of the corporation
shall be managed under the direction of its Board of Directors subject to the
restrictions imposed by law, by the corporation's certificate of incorporation
and amendments thereto, or by these by-laws.
SECTION 4. MEETINGS OF DIRECTORS. The directors may hold their meetings
and may keep an office and maintain the books of the corporation, except as
otherwise provided by statute, in such place or places in the State of New York
or outside the State of New York as the Board may, from time to time, determine.
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting if all of the directors consent in writing to the
adoption of a resolution authorizing the action, and in such event the
resolution and the written consent of all directors thereto shall be filed with
the minutes of the proceedings of the Board of Directors.
Any one or more directors may participate in a meeting of the Board of
Directors by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
SECTION 5. REGULAR MEETINGS. Regular Meetings of the Board of Directors
shall be held at the principal office of the corporation in the County of
4
<PAGE>
Westchester, Town of Rye, State of New York, or at such other place within or
without the State of New York as shall be designated in the notice of the
meeting as follows: One meeting shall be held immediately following the annual
meeting of shareholders and further meetings shall be held at such intervals or
on such dates as may from time to time be fixed by the directors, all of which
meetings shall be held upon not less that four days' notice served upon each
director by mailing such notice to him at his address as the same appears upon
the records of the corporation, except the meeting which shall be held
immediately following the annual meeting of shareholders which meeting shall be
held without notice.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by the direction of the Chairman of the Board of
Directors, or of the President of the corporation, or of one-third of the
directors at the time in office. The Secretary shall give notice of each special
meeting by mailing such notice not less than four days, or by telegraphing such
notice not less than two days, before the date set for a special meeting, to
each director.
SECTION 7. WAIVER. Notice of a meeting need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
SECTION 8. QUORUM. One-third of the total number of directors shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there be less than a quorum present, the majority of those present may
adjourn the meeting from time to time.
SECTION 9. ORDER OF BUSINESS. At meetings of the Board of Directors
business shall be transacted in such order as the Board may fix and determine.
At all meetings of the Board of Directors, The Chairman of the Board of
Directors, or in his absence, the President, or in the absence of both, the
Executive Vice-President or any Vice-President (provided such person be a
member of the Board) shall preside.
SECTION 10. ELECTION OF CHAIRMAN, OFFICERS AND COMMITTEES. At the first
regular meeting of the Board of Directors in each year, at which a quorum shall
be present, held next after the annual meeting of the shareholders, the Board of
Directors shall proceed to the election of a Chairman of the Board, of the
executive officers of the corporation and of the Executive Committee, if the
Board of Directors shall provide for such committee under the provisions of
Article III hereof.
The Board of Directors from time to time may fill any vacancies among the
executive officers, members of the Executive Committee and members of other
committees, and may appoint additional executive officers and additional members
of such Executive Committee or other committees.
5
<PAGE>
SECTION 11. COMPENSATION. Directors who are not officers or employees of
the corporation or any of its subsidiaries may receive such remuneration as the
Board may fix, in addition to a fixed sum for attendance at each regular or
special meeting of the Board or a Committee of the Board; provided, however,
that nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity or receiving compensation
therefor. In addition each director shall be entitled to reimbursement for
expenses incurred in attending any meeting of the Board or Committee thereof.
ARTICLE III
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors by resolution
adopted by a majority of the entire Board, may designate from the Directors an
Executive Committee consisting of three or more, to serve at the pleasure of the
Board. At all times when the Board of Directors is not in session, the Executive
Committee so designated shall have and exercise the powers of the Board of
Directors, except that such committee shall have no authority as to the matters
set out in Section 3 hereof.
Meetings of the Executive Committee shall be called by any member of the
same, on three days' mailed notice, or one day's telegraphed notice to each of
the other members, stating therein the purpose for which such meeting is to be
held. Notice of meeting may be waived, in writing, by any member of the
Executive Committee.
All action by the Executive Committee shall be recorded in its minutes and
reported from time to time to the Board of Directors.
The Executive Committee shall fix its own rules of procedure and shall meet
where and as provided by such rules or by resolution of the Board of Directors.
Any action required or permitted to be taken by the Executive Committee may
be taken without a meeting if all of the members of the Executive Committee
consent in writing to the adoption of a resolution authorizing the action, and
in such event the resolution and the written consent of all members of the
Executive Committee thereto shall be filed with the minutes of the proceedings
of the Executive Committee.
Any one or more members of the Executive Committee may participate in a
meeting of the Executive Committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
SECTION 2. OTHER COMMITTEES. The Board of Directors may appoint such
other committees, of three or more, as the Board shall, from time to time, deem
advisable, which committees shall have and may exercise such powers as shall be
prescribed, from time to time, by resolution of the Board of Directors, except
6
<PAGE>
that such committees shall have no authority as to the matters set out in
Section 3 hereof.
Actions and recommendations by each committee which shall be appointed
pursuant to this section shall be recorded and reported from time to time to the
Board of Directors.
Each such committee shall fix its own rules of procedure and shall meet
where and as provided by such rules or by resolution of the Board of Directors.
Any action required or permitted to be taken by any such committee may be
taken without a meeting if all of the members of such committee consent in
writing to the adoption of a resolution authorizing the action, and in such
event the resolution and the written consent of all members of such committee
thereto shall be filed with the minutes of the proceedings of such committee.
Any one or more members of any such committee may participate in a meeting
of such committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time, and participation by such means shall constitute presence in
person at a meeting.
SECTION 3. LIMITATIONS. No committee shall have authority as to the
following matters:
(1) The submission to shareholders of any action that needs
shareholders' authorization.
(2) The filling of vacancies in the Board of Directors or in any
committee.
(3) The fixing of compensation of the directors for serving on the
Board or on any committee.
(4) The amendment or repeal of the by-laws, or the adoption of new
by-laws.
(5) The amendment or repeal of any resolution of the Board which by
its terms shall not be so amendable or repealable.
SECTION 4. ALTERNATES. The Board may designate one or more directors as
alternate members of any such committees, who may replace any absent member or
members at any meeting of such committees.
SECTION 5. COMPENSATION. Members of special or standing committees may
receive such salary for their services as the Board of Directors may determine;
provided, however, that nothing herein contained shall be construed to preclude
any member of any such committee from serving the corporation in any other
capacity or receiving compensation therefor.
7
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. TITLES AND TERMS OF OFFICE. The executive officers of the
corporation shall be the Chairman of the Board of Directors, a Vice Chairman, a
President, each of whom shall be a member of the Board of Directors, such number
of Executive Vice Presidents, Senior Vice Presidents and Vice Presidents as the
Board of Directors shall determine, a Controller, a Treasurer and a Secretary,
all of whom shall be chosen by the Board of Directors.
The Board of Directors may also appoint one or more Assistant Secretaries
and one or more Assistant Treasurers, and such other junior officers as it shall
deem necessary, who shall have such authority and shall perform such duties as
from time to time may be prescribed by the Board of Directors.
One person may hold more than one of the above offices except the offices
of President and Secretary.
The officers of the Corporation shall each hold office for one year and
until their successors are chosen and qualified, and shall be subject to removal
at any time by the affirmative vote of the majority of the entire Board of
Directors.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall be the chief executive officer of the corporation. He
shall have general management and control over the policy, business and affairs
of the corporation and shall have such other authority and perform such other
duties as usually appertain to a chief executive officer of a business
corporation. He shall preside at meetings of the Board of Directors and of the
shareholders.
SECTION 3. VICE CHAIRMAN. The Vice Chairman shall have such authority
and perform such duties as the Board of Directors, the Executive Committee, or
the Chairman of the Board of Directors may from time to time determine.
SECTION 4. PRESIDENT. The President shall have such authority and shall
perform such duties as the Board of Directors, the Executive Committee, or the
Chairman of the Board of Directors may from time to time determine. He shall
exercise the powers of the Chairman of the Board of Directors during his absence
or inability to act.
SECTION 5. EXECUTIVE VICE PRESIDENTS, GROUP VICE PRESIDENTS, SENIOR
VICE PRESIDENTS and VICE PRESIDENTS. The Executive Vice Presidents, Group Vice
Presidents and Senior Vice Presidents, if any shall be designated, and the Vice
Presidents shall have such powers and perform such duties as may be assigned to
them by the Board of Directors, the Executive Committee, the Chairman of the
Board of Directors or the President. They shall, in order of their seniority or
8
<PAGE>
in such other orders as may be designated by the Board of Directors, the
Executive Committee, the Chairman of the Board of Directors and the President
during the absence or inability to act of the Chairman of the Board of Directors
and the President.
SECTION 6. PRINCIPAL FINANCIAL OFFICER. An officer designated by the
Board of Directors shall be the principal financial officer of the Corporation.
He shall render to the Board of Directors, whenever the Board may require, an
account of the financial condition of the corporation, and shall do and perform
such other duties as from time to time may be assigned to him by the Board of
Directors, the Executive Committee, the Chairman of the Board of Directors or
the President.
SECTION 7. CONTROLLER AND PRINCIPAL ACCOUNTING OFFICER. The Controller
shall be the principal accounting officer and subject to the direction of the
principal financial officer, he shall have supervision over all the accounts and
account books of the corporation. He shall have such other powers and perform
such other duties as from time to time may be assigned to him by the principal
financial officer, and shall exercise the powers of the principal financial
officer during his absence or inability to act.
SECTION 8. TREASURER. The Treasurer shall have custody of the funds and
securities of the corporation which come into his hands. When necessary or
proper, he may endorse on behalf of the corporation for collection, checks,
notes, and other instruments and obligations and shall deposit the same to the
credit of the corporation in such bank or banks or depositaries as the Board of
Directors or the Executive Committee shall designate; whenever required by the
Board of Directors or the Executive Committee, he shall render a statement of
his cash account; he shall keep, or cause to be kept, books of account, in which
shall be entered and kept full and accurate accounts of all monies received and
paid out on account of the corporation; he shall perform all acts incident to
the position of Treasurer, subject to the control of the Board of Directors, the
Executive Committee, the Chairman of the Board of Directors, the President and
the principal financial officer; he shall give bond for the faithful discharge
of his duties, if, as, and when the Board of Directors or the Executive
Committee may require. He shall perform such other duties as from time to time
may be assigned to him by the Board of Directors, the Executive Committee, the
Chairman of the Board of Directors, the President or the principal financial
officer.
SECTION 9. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
such powers and perform such duties as may be delegated to him, and the
Assistant Treasurers shall, in the order of their seniority, or in such other
order as may be designated by the Board of Directors, the Executive Committee,
the Chairman of the Board of Directors, the President or the principal financial
officer, exercise the powers of the Treasurer during his absence or inability to
act.
SECTION 10. SECRETARY. The Secretary shall keep the minutes of all
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meetings of the Board of Directors and the minutes of all meetings of the
shareholders and of the Executive Committee, in books provided for that purpose;
he shall attend to the giving and serving of all notices of the corporation; and
he shall have charge of the certificate books, transfer books and records of
shareholders and such other books and records as the Board of Directors or
Executive Committee may direct, all of which shall at all reasonable time be
open to the inspection of any director upon application during the usual
business hours.
He shall keep at the office of the corporation, or at the office of the
transfer agent or registrar of the corporation's capital stock, a record
containing the names, alphabetically arranged, of all persons who are
shareholders of the corporation, showing their places of residence, the number
of shares of stock held by them, respectively, the time when they respectively
became the owners thereof, and the amount paid thereon, and such record shall be
open for inspection as prescribed by Section 624 of the Business Corporation
Law. He shall in general perform all the duties incident to the office of
Secretary, subject to the control of the Board of Directors, the Executive
Committee, the Chairman of the Board of Directors and the President.
SECTION 11. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
such powers and perform such duties as may be delegated to him, and the
Assistant Secretaries shall, in the order of their seniority, or in such other
order as may be designated by the Board of Directors, the Executive Committee,
the Chairman of the Board of Directors or the President, exercise the powers of
the Secretary during his absence or inability to act.
SECTION 12. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors or by the Executive Committee, the Chairman of the Board of Directors
of the corporation, or one designated in a proxy executed by him, and in the
absence of either, the President, or a person designated in a proxy executed by
him, and in the absence of all such, the Executive Vice Presidents or the Vice
Presidents of the corporation in the order of their seniority, shall have full
power and authority on behalf of the corporation to attend, and to act, and to
vote at meetings of stockholders of any corporation in which this corporation
may hold stock, and each such officer of the corporation shall have power to
sign a proxy deputizing others to vote the same; and all such who shall be so
authorized to vote shall possess and may exercise any and all rights and powers
incident to the ownership of such stock and which, as the owner thereof, the
corporation might have possessed and exercised, if present.
The Board of Directors or the Executive Committee may, by resolution from
time to time, confer like powers on any other person or persons which shall
supersede the powers of those designated in the foregoing paragraph.
SECTION 13. All checks, notes, drafts or other instruments for the
payment of money shall be signed on behalf of this corporation by such person or
persons and in such manner as the Board of Directors or Executive Committee may
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prescribe by resolution from time to time.
ARTICLE V
STOCK-RECORD DATE
SECTION 1. CERTIFICATES FOR STOCK. The certificates for shares of the
stock of the corporation shall be in such form, not inconsistent with the
certificate filed according to law, as shall be proper or approved by the Board
of Directors. Each certificate shall state (i) that the corporation is formed
under the laws of the State of New York, (ii) the name of the person or persons
to whom issued, (iii) the number and class of shares and the designation of the
series, if any, which such certificate represents and (iv) the par value of each
share represented by such certificate. Each certificate shall be signed by the
Chairman of the Board of Directors, the President, the Executive Vice President
or a Vice- President, and also by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary and sealed with the corporation's seal;
provided, however, that if such certificates are signed by a transfer agent or
transfer clerk and by a registrar the signature of the Chairman of the Board of
Directors, the President, the Executive Vice-President, Vice-President,
Treasurer, Assistant Treasurer, Secretary and Assistant Secretary and the seal
of the corporation upon such certificates may be facsimiles, engraved or
printed.
SECTION 2. TRANSFER OF SHARES. Shares of the stock of the corporation
may be transferred on the record of shareholders of the corporation by the
holder thereof in person or by his duly authorized attorney upon surrender of a
certificate therefor properly endorsed.
SECTION 3. The Board of Directors and the Executive Committee shall
have power and authority to make all such rules and regulations as respectively
they may deem expedient concerning the issue, transfer and registration of such
certificates for shares of the stock of the corporation as well as for the
issuance of new certificates in lieu of those which may be lost or destroyed,
and may require of any shareholder requesting replacement of lost or destroyed
certificates, bond in such amount and in such form as they may deem expedient to
indemnify the corporation, and/or the transfer agents, and/or the registrars of
its stock against any claims arising in connection therewith.
SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors or
Executive Committee may appoint one or more transfer agents and one or more
registrars of transfer and may require all stock certificates to be
countersigned by such transfer agent and registered by such registrar of
transfers. One person or organization may serve as both transfer agent and
registrar.
SECTION 5. RECORD DATE. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
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receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors shall fix in advance a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of such meeting,
nor more than fifty days prior to any other action.
SECTION 6. LIST OF SHAREHOLDERS. The Secretary of the corporation or
the transfer agent of its stock shall make and certify a list of the
shareholders as of the record date and the number of shares of each class of
stock of record in the name of each shareholder and such list shall be present
at every meeting of shareholders. If the right to vote at any meeting is
challenged, the inspectors of elections, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be shareholders entitled to vote thereat, may vote at such meeting.
SECTION 7. Dividends may be declared and paid out of the surplus of the
corporation as often and at such times and to such extent as the Board of
Directors may determine, consistent with the provisions of the certificate of
incorporation of the corporation or other certificate of the corporation filed
pursuant to law.
ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a suitable seal containing the name of
the corporation and of the state under the laws of which the corporation was
incorporated; and the Secretary shall have the custody thereof.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The corporation shall indemnify any person to the fullest extent permitted
by applicable law against any and all expenses (including, without limitation,
investigation expenses and expert witnesses' and attorneys' fees and expenses),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person (net of any related insurance proceeds received by or paid on
behalf of such person) in connection with any present or future threatened,
pending or completed claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative, whether or not such claim, action, suit or
proceeding is by or in the right of the corporation based upon, arising from,
relating to, or by reason of the fact that such person was, is, shall be or
shall have been a director or an officer of the corporation, or is or was
serving, shall serve or shall have served at the request of the corporation as
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust employee benefit plan or other enterprise;
provided that no indemnification may be made to or on behalf of any person if a
judgment or other final adjudication adverse to such person establishes that his
acts were committed in bad faith or were the result of active and deliberate
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dishonesty and were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonable believed, by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interest of the corporation.
A person entitled to indemnity under the first paragraph of this section
who has been successful, on the merits or otherwise, in the defense of a civil
or criminal action or proceeding of the character described in such paragraph
shall be entitled to indemnification as authorized in such paragraph. Any other
indemnification under such paragraph, unless awarded by a court, shall be made
by the corporation only if authorized in the specific case,
1. by the Board of Directors acting by a quorum of Directors who are
not parties to such action or proceeding upon a finding that the director
or officer has met the standard of conduct set forth in such paragraph, or
2. if such a quorum is not obtainable or, even if obtainable, a quorum
of disinterested directors so directs, (i) by the Board of Directors upon
the opinion in writing of independent legal counsel that indeminification
is proper in the circumstances because the applicable standard of conduct
set forth in such paragraph has been met by such person, or (ii) by the
shareholders upon a finding that such person has met the applicable
standard of conduct set forth in such paragraph.
Expenses incurred by a person in defending a civil or criminal action, suit
or proceeding shall be paid by the corporation promptly as incurred and in
advance of the final disposition of such action upon receipt of an undertaking
by or on behalf of such person to repay such amount to the extent the expenses
so advanced exceed the indemnification to which it is ultimately determined that
he is entitled.
The termination of any such civil, or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that a director's or
officer's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
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If under the foregoing provisions any expenses or other amounts are paid by
way of indemnification, otherwise than by court order or action by the
shareholders, the corporation shall, not later than the next annual meeting of
shareholders unless such meeting is held within three months from the date of
such payment, and in any event, within fifteen months from the date of such
payment, mail to its shareholders of record at the time entitled to vote for the
election of Directors a statement specifying the persons paid, the amounts paid,
and the nature and status at the time of such payment of the litigation or
threatened litigation.
The indemnification provided by this section shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to his action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII
AMENDMENTS
SECTION 1. These by-laws may be amended, repealed or adopted by the
affirmative vote of the holders of a majority of all the shares outstanding and
entitled to vote at any regular or special meeting of the shareholders, if
notice of the proposed alteration or amendment be contained in the notice of the
meeting, provided, however, that no change in the time or place for the election
of directors shall be made within fifty days next preceding the date on which
such election is to be held and that in case of any change of such time or
place, notice thereof shall be given to each shareholder in person or by letter
mailed to his last known post office address, at least fifty days before the
election is held.
The Board of Directors shall have the power to amend or repeal these
by-laws, or any of them, or to adopt any new by-law, but any such action of the
Board may be amended or repealed by the shareholders, provided, however, that
any amendment which changes the number of directors shall require the vote of a
majority of the entire board.
If any by-law regulating an impending election of directors is adopted or
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of the shareholders for the election of directors the
by-law so adopted or amended or repealed, together with a concise statement of
the changes made.
ARTICLE IX
DIVISIONS
SECTION 1. ORGANIZATION. The Board of Directors may cause the business
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and operations of this corporation to be divided into divisions based upon
character or type of operations, operating units, or upon such other basis of
division as the Board of Directors may from time to time determine to be
advisable, any may cause the business and operations of any such division to be
further divided into subdivisions or departments if deemed advisable by the
Board of Directors and upon such basis of subdivision as the Board of Directors
may determine.
SECTION 2. OFFICERS OF DIVISIONS. The Board of Directors of the
corporation may provide for the appointment of officers for each division into
which any of the activities of this corporation may be divided, with such duties
as the Board of Directors of the corporation may from time to time determine.
Officers of a division may be designated by such titles as President, Executive
Vice President, Senior Vice President, Vice President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer, or Controller, as the Board of
Directors of the corporation may from time to time determine. The authority of
the officers of each division shall be subject to the control of, and shall be
limited to acts and transactions in conformity with the policies of, the Board
of Directors of the corporation, and may be further limited to acts and
transactions pertaining to the business of this corporation which such division
is authorized to transact and perform. Individuals shall be appointed as
divisional officers, and may be removed as such, by the Chairman of the Board of
Directors, who shall report all such appointments and removals to the Board of
Directors of the corporation. One person may hold more than one of divisional or
departmental offices. Any general officer of the corporation shall be eligible
for appointment to one or more offices in one or more divisions or departments,
but a divisional or departmental officer, as such, shall not be an officer of
the corporation.
SECTION 3. BY-LAWS OF DIVISIONS. The Board of Directors of the
corporation may establish and amend from time to time by-laws for each division.
Such by-laws may contain provisions setting forth the titles, duties and
responsibilities of the Board of Directors, Executive Committee and officers of
each division and such other rules relating to the operation of the division as
the Board of Directors shall provide.
15
Exhibit 10(iii)(A)(vii)
SUPPLEMENTAL RETIREMENT PLAN FOR
SELECT SENIOR MANAGEMENT OF
MELVILLE CORPORATION
as amended through
May 12, 1989
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TABLE OF CONTENTS
Page
ARTICLE 1. Definitions........................................... 1
ARTICLE 2. Membership............................................
ARTICLE 3. Amount and Payment of Supplemental
Benefits ........................................
ARTICLE 4. Administration .......................................
ARTICLE 5. General Provisions ...................................
ARTICLE 6. Amendment or Termination .............................
2
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Article 1. Definitions
1.01 (a) "Annual Benefit" shall mean, with respect to a Member who became or
becomes a Retiree after December 31, 1985, the amount by which
50%, or such lesser percentage specified in clause (b) below, of
such Member's Compensation exceeds the sum of
(i) the aggregate annualized value of any retirement and/or
deferred profit sharing benefits in respect of such Member
which have previously been received or which such Member of
any other person has a vested right to receive at the time of
the commencement of payment of such Member's benefit under
Section 3.04 of the Plan, under any arrangement maintained by
the Corporation other than the Plan, computed pursuant to
clause (c) below, and
(ii) the Annual Benefit used in computing any lump sum payment
previously made pursuant to Section 3.04 to such a Member
becoming entitled to a recomputation of the Annual Benefit
pursuant to Section 3.05.
(b) In the case of any Member whose retirement allowance under Section
3.04 of the Plan commences to be paid on
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or after his reaching age 55 years but prior to his reaching age 60
years, there shall be substituted for "50%" in clause (a) above
that lower percentage which results from subtracting that
percentage which is the product of 5 times the number of whole and
partial years (treating a partial year as a whole year) until such
Member's 60th birthday so that, for example, the applicable
percentage for a Member age 58-1/2 years would be 40% (50% - (5 X
2)% = 40%).
(c) The annualized value of a Member's retirement and deferred profit
sharing benefits shall be computed as follows:
(i) with respect to any benefit which such Member is thereupon
commencing to receive at the time of such computation in the
form of an annuity, the annual payment to which such Member
would be entitled under the terms of the plan under which such
benefit is to be paid, were such benefit to be paid in the
form of a single life annuity for the Member's life,
(ii) with respect to any other benefit, the annual amount of the
actuarial equivalent of such benefit computed as if such
benefit were to be paid in the form of a single life annuity
to such Member commencing at the time of such computation. In
computing such actuarial equivalents, the
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actuarial assumptions to be used shall be (i) the mortality
tables used in calculating actuarial equivalents under the
Melville Corporation Retirement Plan at the time of such
calculation and (ii) an interest rate assumption equal to the
applicable interest rate (expressed as a percentage) used by
the Pension Benefit Guaranty Corporation for valuing benefits
for single employer plans that terminate on the date of such
calculation, minus .5%.
1.02 "Board of Directors" shall mean the Board of Directors of Melville
Corporation.
1.03 "Change in Control" shall mean any of the following occurrences: (a) any
"person" or "group of persons" as such terms are used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
purchases or otherwise becomes "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) directly or indirectly, of securities
representing 25% or more of the combined voting power of Melville
Corporation (including, without limitation, securities which may be
acquired upon the exercise of any option or options owned by such person
or group of persons to purchase any such voting securities, or
conversion of securities convertible into such voting securities,
whether or not
5
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such option or options or convertible securities were outstanding on the
date hereof and whether or not such options are exercisable or such
securities are convertible at the time of the Change in Control); (b)
during any period of two consecutive years, the individuals who at the
beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless (i) there are
four or more directors then still in office who were directors at the
beginning of the period and (ii) the election, or the nomination for
election, by Melville Corporation's shareholders of each new director
was approved by a vote of at least two thirds of the directors then
still in office who were directors at the beginning of the period; (c)
the shareholders of Melville Corporation shall have voted to approve an
agreement to merge or consolidate Melville Corporation with or into
another corporation as a result of which less than 50% of the
outstanding voting securities of the surviving or resulting entity are
or are to be owned by the former shareholders of Melville Corporation
(excluding from former shareholders a shareholder who is an "affiliate,"
as defined in Rule 12b-2 under the Exchange Act, of any party to such
consolidation or merger); or (d) the shareholders of Melville
Corporation approve the sale
6
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of all or substantially all of Melville Corporation's business and/or
assets to a person or entity which is not a wholly-owned subsidiary of
Melville Corporation; provided, however, that none of the foregoing
shall be deemed to constitute a Change in Control if in connection
therewith it shall be necessary to file a Schedule 13E-3 pursuant to
Rule 13e-3 under the Securities Exchange Act of 1934, unless immediately
prior to such event the Board of Directors shall determine such event to
constitute a Change in Control.
1.04 "Compensation" shall mean the greater of (i) a Member's annual base pay
rate plus full annual normal incentive compensation award as in effect
on such Member's Compensation Measurement Date and (ii) the average of
such Member's actual base pay and incentive compensation received during
the 5 full calendar years immediately prior to such Member's
Compensation Measurement Date. A Member's Compensation Measurement Date
shall be the date on which such Member terminates employment with the
Corporation for any reason, including retirement, death or disability,
unless using the date of a Change in Control as of which such Member was
a Member would result in a higher amount in which case the date of such
Change in Control shall be such Member's Compensation Measurement Date.
7
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1.05 "Corporation" shall mean Melville Corporation and any subsidiary or
other entity at any time at which 50% or more of the voting power or
beneficial interest of such subsidiary or other entity, is owned
directly or indirectly by Melville Corporation. References in the Plan
to Melville Corporation shall be deemed to include successors to
Melville Corporation.
1.06 "Executive Employee" shall mean the Chairman, Vice Chairman, President
or any corporate Vice President or more senior officer of Melville
Corporation.
1.07 "Lump Sum Benefit" shall mean
(a) with respect to a Member to whom payment of benefits under
Section 3.04 has not commenced or, if previously commenced, has been
discontinued pursuant to Section 3.05, and who has made no election
under Section 3.04 or has elected a form of benefit under Section 3.04
making no provision for the Spouse, the lump sum actuarial equivalent of
a single life annuity for the Member commencing at such date (but not
prior to such Member's attaining age 60) as of which such Member would
have had 15 years of Service assuming no termination of employment with
the Corporation following a Change in Control (the "Presumed Starting
Date"), under which annuity the annual payment is equal to the Projected
Annual Benefit times a fraction, the numerator of which is such Member's
years of Service as
8
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of such Member's Termination of Employment (but not more than 15) and
the denominator of which is 15,
(b) with respect to (i) a Member to whom payment of benefits under
Section 3.04 has not commenced or, if previously commenced, has been
discontinued pursuant to Section 3.05 and who has elected an optional
form of benefit under Section 3.04 making a provision for the Spouse and
(ii) the Spouse of such Member, the lump sum actuarial equivalent of
that part of the benefit described in clause (a) to be paid to such
Member, or to such Spouse, respectively, pursuant to the optional form
of benefit elected by such Member under Section 3.04, or
(c) with respect to (i) a Spouse to whom payment of benefits under
Section 3.03 has commenced, (ii) a Member to whom payment of benefits
under Section 3.04 has commenced and has not been discontinued pursuant
to Section 3.05 and (iii) the Spouse of such a Member, the lump sum
actuarial equivalent of all future benefits, if any, payable to such
Member or to such Spouse, as the case may be, under the Plan.
The amount of such actuarial equivalents computed under this
Section 1.07 shall be determined by the Compensation Committee of the
Board of Directors with sole discretion using the actuarial assumptions
described in Section 1.01(c).
9
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1.08 "Member" shall mean any person included in the membership of the Plan as
provided in Article 2.
1.09 "Normal Retirement Date" shall mean the first day of the calendar month
next succeeding the month in which the Member's 65th birthday occurs.
1.10 "Plan" shall mean the Supplemental Retirement Plan for Select Senior
Management of Melville Corporation, as described herein or as hereafter
amended.
1.11 "Projected Annual benefit" shall mean
(a) with respect to a Member of the Plan at the time of a Change in
Control to whom payment of benefits under Section 3.04 has not
commenced, the amount by which 50% of such Member's Compensation exceeds
the sum of
(i) the aggregate annualized value of any retirement and deferred
profit sharing benefits in respect of such Member which have
previously been received or which such Member or any other person
has a vested right to receive at the time of such Member's
termination of employment under any arrangement maintained by the
Corporation, other than the Plan, computed in the manner described
in Section 1.01 (c), assuming payment of such benefits will
commence at such Member's Presumed Starting Date, as defined in
Section 1.07, and
(ii) the Annual Benefit used in computing any lump sum payment
previously made to such Member pursuant to
10
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Section 3.04; or
(b) with respect to a Member of the Plan at the time of a Change in
Control to whom payment of benefits under Section 3.04 has previously
commenced but who has been restored to employment with the Corporation,
the amount computed pursuant to (a) above, but in no event less than
such Member's Annual Benefit computed pursuant to Section 3.05 as if
such Member had then terminated employment with the Corporation.
1.12 "Retiree" shall mean a Member who has 15 or more years of Service and
terminates employment with the Corporation at or after age 55 for any
reason, including disability but excluding death, provided, however,
that if such Member shall be eligible upon such termination of
employment to commence to receive payments under the Retirement Plan in
which he is a participant, if any, he shall not be a Retiree unless he
commences to receive such payment upon such termination of employment.
1.13 "Retirement Administration Committee" shall mean the Retirement
Administration Committee of the Retirement Plan.
1.14 "Retirement Plan" shall mean, with respect to a participant in the
Melville Corporation Retirement Plan, said Plan or, with respect to a
Member who is not participant in said Plan, such other pension plan,
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maintained by the Corporation, meeting the requirements of Section 401
of the Internal Revenue Code of 1986, as amended, in which such Member
shall be a participant, if any.
1.15 "Service" shall mean with respect to a Member the period of such
Member's active employment with the Corporation, whether or not as an
Executive Employee.
1.16 "Spouse" shall mean the Member's lawfully married spouse (1) at the time
payments to the Member commence under the Plan or (2) in the case of
benefits payable under Section 3.03, at the time of the Member's death.
1.17 "Termination of Employment" shall have the meaning assigned to such term
in the Income Continuation Policy for Select Senior Executive of
Melville Corporation.
Article 2. Membership
2.01 Every Member of the Plan on May 12, 1988 and every Executive Employee in
the employ of the Corporation on May 12, 1988 who can complete 15 years
of Service by his Normal Retirement Date shall continue to be or shall
become a Member of the Plan on May 12, 1988, as the case may be.
2.02 Any other employee of the Corporation who becomes an Executive Employee
shall thereupon become a Member of the Plan provided he can complete 15
years of Service by his Normal Retirement Date.
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2.03 Any former employee of the Corporation who is a Retiree under the Plan
on May 12, 1988 and any Member who thereafter becomes a Retiree shall
continue to be a Member of the Plan until the later of (a) the
termination of his employment and (b) the payment of all benefits in
respect to such Retiree under the Plan.
2.04 The membership under the Plan of an Executive Employee who is not a
Retiree shall terminate if his employment with the Corporation as an
executive Employee terminates unless at the time of such termination, or
within 60 days thereafter, he becomes a Retiree or unless upon such
termination he continues to be entitled to a benefit hereunder pursuant
to Section 3.06.
2.05 A Member whose membership in the Plan terminates pursuant to Section
2.03 or Section 2.04 shall be restored to membership in the Plan at such
time as he is restored to employment as an Executive Employee of the
Corporation, provided he meets the requirements of Section 2.01 at the
time of such restoration to employment.
Article 3. Amount and Payment of Supplemental Benefits
3.01 Except as provided in Section 3.06, benefits under the Plan shall be
payable by Melville Corporation only with respect to Members who are
Retirees or become Retirees or, as provided in Section 3.03, to Spouses.
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3.02 Payment of benefits to a Retiree under the Plan shall commence upon
termination of employment with the Corporation.
3.03 In the event that a Member dies, after attaining age 55 with 15 years of
Service, prior to becoming a Retiree, or dies after becoming a Retiree
but prior to commencing to receive payments hereunder pursuant to
Section 3.04, his Spouse shall be entitled to the immediate commencement
of a single life annuity, with an annual payment equal to one-half of
the Annual Benefit, if any, computed under Section 1.01, including any
reduction under subsection (b) thereof, if applicable, for such Member
as if the Member were a Retiree and had commenced to receive payment of
benefits under Section 3.04 immediately prior to his death.
3.04 Except as provided in Section 3.06 and subject to the next succeeding
sentence, the benefit payable under the Plan to a Retiree shall be a
single life annuity for the life of the Retiree, with annual payments
equal to the annual Benefit computed under Section 1.01 for such Member
at the time of the commencement of payment of benefits under this
Section 3.04, adjusted annually to reflect the excess, if any, of the
annual retirement allowance for such year actually received by such
Retiree under any Retirement Plan over the amount
14
<PAGE>
deducted with respect to the vested benefit under such Retirement Plan
in the calculation of such Member's Annual benefit under Section
1.01(a)(i). A Member may elect in a writing filed with the Retirement
Administration Committee at least 12 months prior to the date of the
commencement of benefits hereunder to receive such benefits (a) in an
optional form permitted at the time of such election for the payment of
benefits under the Melville Corporation Retirement Plan or (b) in a lump
sum, provided, however, that (i) a Member may not name anyone as a
beneficiary under the Plan other than his Spouse and (ii) a Member may
not elect an optional form of benefit providing for a deferred
commencement date. Any such optional form of benefit or lump sum shall
be the actuarial equivalent of such single life annuity using the
actuarial assumptions described in Section 1.01(c).
3.05 If a Retiree who has terminated employment with the Corporation is
restored to employment after commencing to receive payments under
Section 3.04 of the Plan, the payment of benefits under the Plan shall
be discontinued (unless all such benefits have been previously paid in a
lump sum) and, upon such Member's subsequent termination of employment
with the Corporation for any reason, including retirement, death or
disability, the Member's Annual Benefit under the
15
<PAGE>
Plan or the Spouse's benefit under the Plan shall thereafter be
recomputed in accordance with Section 1.01, Section 3.03, Section 3.04
or Section 3.06, as applicable, and shall be payable in accordance with
the provisions of the Plan, provided, however, that such recomputation
shall be based upon the higher of (i) such Member's Compensation at the
time of such previous termination of employment and (ii) such Member's
Compensation at the time of such subsequent termination of employment.
3.06 Notwithstanding the provisions of Section 3.01 and Section 3.02, if a
Change in Control occurs:
(a) Each Member who is then a Retiree and each Spouse then entitled
to benefits under Section 3.03 or Section 3.04 shall be entitled to
receive an immediate payment in cash of such Retiree's or such Spouse's
Lump Sum Benefit.
(b) Each Member at the time of such Change in Control who
experiences a Termination of Employment, each Spouse of such a Member
who has elected an optional form of benefit under Section 3.04 making a
provision for such Spouse, and each Spouse of a Member at the time of
such Change in Control who dies within 2 years following such Change in
Control without having received a Lump Sum Benefit, shall, upon such
Termination of Employment or death, as the case may be,
16
<PAGE>
be entitled to receive an immediate payment in cash of such Member's or
such Spouse's Lump Sum Benefit.
(c) Each Member at the time of such Change in Control who neither
dies within 2 years following such Change in Control nor experiences a
Termination of Employment shall, upon such Member's later termination of
employment with the Corporation for any reason other than death, without
becoming a Retiree and, with respect to each such Member who later dies,
the Spouse of such Member is such Spouse is not otherwise entitled to a
benefit under Section 3.03, shall nevertheless be entitled to a Benefit
commencing at the Presumed Starting Date in the form specified in
Section 3.04 or Section 3.03, as the case may be, provided that in
computing such benefit there shall be substituted for the term Annual
Benefit in Section 3.04 or Section 3.03, as the case may be, the
following: the Projected Annual Benefit times a fraction, the numerator
of which is such Member's years of Service as of such Change in Control
(but not more than 15) and the denominator of which is 15.
(d) The benefits to be paid pursuant to paragraph (c) of this
Section 3.06 shall not be payable from the assets of the trust to be
established in connection with the Income Continuation Policy for Select
Senior Executives of Melville Corporation pursuant to a
17
<PAGE>
resolution of the Board of Directors on May 12, 1988.
Article 4. Administration
4.01 The administration of the Plan, the exclusive power to interpret it, and
the responsibility for carrying out it provisions are vested in the
Retirement Administration Committee, except that the determinations of
whether any Member or Spouse is entitled to payment of a Lump Sum
Benefit pursuant to Section 3.06 and the amount thereof shall be within
the exclusive authority of the Investment Committee under the Trust
Agreement to be established in connection with the Plan pursuant to a
resolution of the Board of Directors on May 12, 1988.
4.02 The provisions of Article 11 of the Melville Corporation Retirement Plan
concerning Retirement Administration Committee membership, meetings,
maintenance of records and Retirement Administration Committee powers
shall apply under the Plan. The expenses of the Retirement
Administration Committee incurred in connection with the Plan shall be
paid directly by the Corporation.
Article 5. General Provisions
5.01 Neither the establishment of the Plan nor the crediting of any Service
under Section 4.01 shall be construed as conferring any legal rights
upon any Executive Employee
18
<PAGE>
or other person for a continuation of employment, nor shall such actions
interfere with the rights of the Corporation to discharge or demote any
Executive Employee and to treat him without regard to the effect which
such treatment might have upon him as a Member of the Plan.
5.02 In the event that the Retirement Administration Committee shall find
that a Member is unable to care for his affairs because of illness or
accident, the Retirement Administration Committee may direct that any
benefit payment due him, unless claim shall have been made therefor by a
duly appointed legal representative, be paid to his spouse, a child, a
parent or other blood relative, or to a person with whom he resides, and
any such payment so made shall be a complete discharge of the
liabilities of the Plan therefore.
5.03 Melville Corporation shall have the right to deduct from each payment to
be made under the Plan any required withholding taxes.
5.04 Subject to any applicable law, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt so to do
shall be void, nor shall any such benefit be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of
the Retiree.
19
<PAGE>
5.05 In the event that a Member or Retiree shall at any time be convicted of
a crime involving dishonesty or fraud on the part of such Member in his
relationship with the Corporation, all benefits which would otherwise be
payable to him under the Plan shall be forfeited.
5.06 The rights of any Member or Retiree to benefits under the Plan prior to
the actual receipt of such benefits shall be limited to those of a
general unsecured creditor of Melville Corporation.
5.07 The Plan shall be construed, regulated and administered under the laws
of the State of New York. 5.08 The masculine pronoun shall mean the
feminine wherever appropriate.
Article 6. Amendment or Termination
The Board of Directors reserves the right to modify or to amend, in whole
or in part, or to terminate, this Supplemental Retirement Plan for Select Senior
Management of Melville Corporation at any time; provided, however, that no such
modification, amendment or termination shall adversely affect the right of any
Member (or the Spouse of such Member) to receive the benefits such Member (or
the Spouse of such Member) would have received under the Plan upon termination
of employment with the Corporation for any reason, including retirement, death
or disability, had the Plan not been so modified, amended or terminated, taking
into account such Member's Service and age at
20
<PAGE>
the time of such Member's actual termination of employment with the Corporation
for any such reason.
21
Exhibit 10(iii)(A)(viii)
INCOME CONTINUATION POLICY FOR
SELECT SENIOR EXECUTIVES OF
MELVILLE CORPORATION
------------------------------
as amended
May 12, 1988
1
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1. Purpose.................................. 1
ARTICLE 2. Definitions ............................. 1
ARTICLE 3. Membership .............................. 4
ARTICLE 4. Amount and Payment of Benefits .......... 4
ARTICLE 5. Administration .......................... 11
ARTICLE 6. General Provisions ...................... 12
ARTICLE 7. Amendment or Termination ................ 14
2
<PAGE>
ARTICLE 1. Purpose
The purpose of this Policy is to maximize the effort and contribution that
can be made by selected executive personnel of the Corporation by relieving
their concerns about employment security and income continuation in the event of
a significant change in the ownership or control of the Corporation.
ARTICLE 2. Definitions
2.0l. "Benefit Event" shall have the meaning provided in Section 4.02(a).
2.02 "Board of Directors" shall mean the Board of Directors of Melville
Corporation.
2.03. "Cause" shall have the meaning provided in Section 4.02(d).
2.04. "Committee" shall mean, prior to the occurrence of a Benefit Event,
the committee appointed by the Board of Directors from those of its members who
are not employees of the Corporation to administer the policy in accordance with
Article 5. After the occurrence of a Benefit Event, the Investment Committee as
constituted from time to time under the Trust Agreement shall be deemed to be
the Committee.
2.05. "Compensation" shall mean the Member's annual base pay rate plus
full normal annual incentive compensation award as in effect immediately
3
<PAGE>
prior to a Termination of Employment, but in each case not less than the annual
base pay rate and annual incentive compensation award as in effect immediately
prior to the occurrence of the Benefit Event.
2.06. "Corporation" shall mean Melville Corporation and, with respect to
any Executive Employee employed by any subsidiary or other entity 50% or more of
the voting power or beneficial interest of which is owned directly or indirectly
by Melville Corporation, such subsidiary or other entity. References in the
Policy to Melville Corporation shall be deemed to include successors to Melville
Corporation.
2.07. "Effective Date" shall mean January 1, 1987.
2.08. "ERISA" shall mean the Employee Retirement Income Security Act of
l974, as amended.
2.09. "Executive Employee" shall mean the Chairman, Vice Chairman,
President, or any corporate Vice President or more senior officer of Melville
Corporation and any Divisional President of the Corporation (including
Presidents of Divisions which are in corporate form).
2.10. "Good Reason" shall have the meaning provided by Section 4.02(c).
2.11. "Member" shall mean any person included in the membership of the
Policy as provided in Article 3.
2.12. "Policy" shall mean the Income Continuation Policy for Select
Senior Executives of Melville Corporation, as
4
<PAGE>
described herein or as hereafter amended.
2.13. "Senior Executive Employee" shall mean the Chairman, Vice Chairman,
President and Executive Vice Presidents of Melville Corporation.
2.14 "Termination of Employment" shall mean (i) termination by the
Corporation of a Member's employment with the Corporation for any reason other
than Cause and (ii) any voluntary termination by the Member of a Member's
employment with the Corporation for Good Reason, which in each case occurs
coincident with or within the twenty-four (24) month period immediately
following the occurrence of a Benefit Event.
2.15 "Trust Agreement" shall mean the trust agreement to be established
in connection with the Policy pursuant to a resolution of the Board of Directors
on May , 1988.
--
ARTICLE 3. Membership
3.01 Every Executive Employee in the employ of the Corporation on the
Effective Date shall become a Member of the Policy on the Effective Date.
3.02 Any other employee of the Corporation who becomes an Executive
Employee shall become a Member of the Policy on the date he shall become an
Executive Employee.
5
<PAGE>
ARTICLE 4. Amount and Payment of Benefits
4.01 (a) Upon the occurrence of a Benefit Event each Member shall (i) be
fully vested in all shares previously awarded to the Member under the Melville
Corporation 1980 Restricted Stock Plan without regard to any restrictions
previously imposed under the terms of such plan, and (ii) become entitled to
exercise any stock options on the Corporation Common Stock not then exercisable.
In addition, each stock option then held by such Member shall remain exercisable
during the period ending at the earlier of (A) six (6) months after such Member
ceases to be employed by the Corporation, if permitted under the terms of the
plan under which such option as granted, or (B) the expiration of the option
period specified in such stock option.
(b) Upon the Termination of Employment of a Member, such Member shall be
(i) in the case of a Senior Executive Employee, entitled to receive from the
Corporation a single sum payment equal to three (3) times his Compensation, (ii)
in the case of a Member who is not a Senior Executive Employee, entitled to
receive from the Corporation a single sum payment equal to two (2) times his
Compensation, and (ii) entitled to remain a full participant in all employee
welfare benefit plans, as defined in section 3(1) of ERISA, maintained by the
Corporation and in which such Member was a participant at the time of such
Termination of Employment for a period of twenty- 333333four (24) months after
such Termination of Employment (or if such
6
<PAGE>
participation is not possible under the terms of any such plan, such Member
shall be provided by the Corporation with benefits which are comparable to the
coverage provided by such plan),
(c) Payment of the amount due under (b)(i) or (b)(ii) above shall be made
as a single sum within fifteen (15) days after a Member's Termination of
Employment. No reduction in any amount due, or benefit provided, under this
Policy shall be affected by reason of any employment of the Member after his
Termination of Employment.
4.02 For purposes of this Policy:
(a) Subject to clause (b) of this Section 4.02, a "Benefit Event" shall
occur if:
(1) any "person" or "group of persons" as such terms are used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
purchases or otherwise becomes "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) directly or indirectly, of securities representing
25% or more of the combined voting power of Melville Corporation
(including, without limitation, securities which may be acquired upon the
exercise of any option or options owned by such person or group of persons
to purchase any such voting securities, or conversion of securities
convertible into such voting securities, whether or not such option or
options or convertible securities were outstanding on January 1, 1987 and
whether or not such options are exercisable or such securities are
convertible
7
<PAGE>
at the time of the Benefit Event); or
(2) during any period of two consecutive years, the individuals who at the
beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless (A) there are four
or more directors then still in office who were directors at the beginning
of the period and (B) the election, or the nomination for election, by
Melville Corporation's shareholders of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(3) the shareholders of Melville Corporation shall have voted to approve an
agreement to merge or consolidate Melville Corporation with or into another
corporation as a result of which less than 50% of the outstanding voting
securities of the surviving or resulting entity are or are to be owned by
the former shareholders of Melville Corporation (excluding from former
shareholders, a shareholder who is an "affiliate," as defined in Rule 12b-2
under the Exchange Act of any party to such consolidation or merger); or
(4) the shareholders of Melville Corporation approve the sale of all or
substantially all of Melville Corporation's business and/or assets to a
person or entity which is not a wholly-owned subsidiary of the Corporation.
(b) Notwithstanding the foregoing provisions of Section 4.02(a), none
8
<PAGE>
of the events listed therein shall be deemed to constitute a Benefit Event if in
connection therewith it shall be necessary to file a Schedule 13E-3 pursuant to
Rule 13e-3 under the Securities Exchange act of 1934, unless immediately prior
to such event the Board of Directors shall determine such event to constitute a
Benefit Event.
(c) "Good Reason" means any of the following which occur after the
occurrence of a Benefit Event without the express written consent of the
affected Member:
(1) the assignment to the Member of any duties inconsistent with his
position, responsibilities, reporting relationships, authority or status
with the Corporation as in effect immediately prior to a Benefit Event, or
a material alteration or diminution of his position, duties,
responsibilities, reporting relationships, authority or status (including
corresponding perquisites) from those in effect, or otherwise accorded to
him, immediately prior to such Benefit Event;
(2) the relocation of the Member's principal place of employment to a
location more than fifty miles from the location of such place of
employment at the time of a Benefit Event or the Corporation's requiring
the Member to be based anywhere other than such principal place of
employment except for required travel on the Corporation's business to an
extent substantially consistent with his business travel obligations as in
9
<PAGE>
effect immediately prior to such Benefit Event;
(3) a reduction in the Member's base salary as in effect immediately prior
to a Benefit Event or as the same may be increased from time to time;
(4) a reduction in the annual incentive compensation paid or payable to the
Member, including a reduction in the rate at which such incentive
compensation is computed or a reduction in the level of such Member's
incentive compensation, or potential incentive compensation, relative to
other recipients or potential recipients of incentive compensation from the
Corporation;
(5) the failure by the Corporation to continue to provide the member with
benefits at least as favorable as those enjoyed by him under any employee
benefit plan, as defined in Section 3(2) of ERISA, in which the member was
participating at the time of a Benefit Event, the taking of any action by
the Corporation which would directly or indirectly materially reduce any of
such benefits, or the failure by the Corporation to provide the Member with
the number of paid vacation day or other perquisites to which he was
entitled prior to such Benefit Event;
(d) "Cause" shall mean, in connection with an involuntary termination by
the Corporation of a Member's employment, a substantial failure by the Member
10
<PAGE>
to perform the duties of his position, which failure involves dishonesty or
conduct materially injurious to the financial condition or reputation of the
Corporation, or the conviction of the Member of a crime which constitutes a
felony under the laws of the State of New York.
4.03. (a) In the event that the Committee determines at the time of a
Benefit Event or thereafter, or in the event it is established pursuant to a
final determination of a court or an Internal Revenue Proceeding, that any
payment to a Member by the Corporation upon the occurrence of a Benefit Event or
upon a Member's Termination of Employment after a Benefit Event whether such
payment is made pursuant to the Policy or otherwise, is subject to any tax under
Section 4999 of the Internal Revenue Code of 1986, as amended, then the
Corporation shall pay to such Member, within 15 days of such determination, an
additional amount or amounts equal to that amount which, when reduced by
Federal, state and local income taxes on such amount computed at the highest
marginal applicable income tax rates for the year in which such additional
payment is made to the Member, is equal to the amount of such tax under said
Section 4999, plus any interest and penalties imposed on such tax in the event
that the payment of such tax and the payment under this section 4.03 (a) with
respect thereto are made after the date such tax is ultimately determined to
have been due.
(b) The determination of whether any such additional payment
11
<PAGE>
is required to be made pursuant to Section 4.03 (a) above and the amount thereof
shall be made by the Committee with sole discretion, provided, however, that
final determination of a court or an Internal Revenue proceeding with respect to
the amount of tax imposed on such a payment under said Section 4999 shall be
binding upon the Committee.
ARTICLE 5. Administration.
(a) Prior to a Benefit Event, the administration of the Policy, the
exclusive power to interpret it, and the responsibility for carrying out its
provisions are vested in the Committee. The Committee shall establish such
rules, regulations and procedures as it shall deem necessary or advisable. The
expenses of the committee shall be paid directly by Melville Corporation.
(b) Upon and after the occurrence of a Benefit Event, the responsibilities,
authorities, rights and liabilities of the Committee shall be vested exclusively
in the Investment Committee under the Trust Agreement.
ARTICLE 6. General Provisions.
6.01. (a) The establishment of the Policy shall not be construed as
conferring any legal rights upon any Executive Employee or other person for a
continuation of employment, nor shall it interfere with the rights of the
12
<PAGE>
Corporation to discharge any Executive Employee and to treat him without regard
to the effect which such treatment might have upon him as a Member of the
Policy.
(b) Any benefits due or provided hereunder to a Member shall be in addition
to, and not in substitution of, any benefit to which the Member is otherwise
entitled without regard to this Policy.
6.02. In the event that the Committee shall find that a Member is unable
to care for his affairs because of illness or accident, the Committee may direct
that any payment due him, unless claim shall have been made therefor by a duly
appointed legal representative, be paid to his spouse, a child, a parent or
other blood relative, or to a person with whom he resides, and any such payment
so made shall be a complete discharge of the liabilities under the Policy
therefor.
6.03. The Corporation shall have the right to deduct from each payment to
be made under the Policy any required withholding taxes.
6.04. Subject to any applicable law, no benefit under the policy shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt so to do shall be void, nor shall
any such benefit be in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Member.
6.05. The rights of any Member to benefits under the policy prior
13
<PAGE>
to the actual receipt of such benefits shall be limited to those of a general
unsecured creditor of the Corporation. Notwithstanding the foregoing, prior to
the occurrence of a Benefit Event of which the Corporation has notice, or
immediately after the occurrence of a Benefit Event of which the Corporation
does not have prior notice, the Corporation shall transfer to the trustee then
acting under the Trust Agreement that amount of cash which, when added to the
other assets then held in said trust, the Committee deems with sole discretion
to be sufficient to provide for the payment of benefits, including any and all
contingent benefits, under the Policy as well as (a) the payments required to be
made upon the ^Termination of Employment or death within 2 years following such
Benefit Event of a Member of ^ the Supplemental Retirement Plan for Select
Senior Management of Melville Corporation (hereinafter the "SERP Payments")^and
(b) any and all expenses and contingent expenses under the Trust Agreement.
6.06 The Corporation will pay or reimburse each Member for all costs and
expenses (including court costs and attorneys' fees) incurred by the Member as a
result of any claim, order or proceeding arising out of, or challenging the
validity, advisability or enforceability of this Policy, any provision hereof,
or the SERP Payment, if any, to which such Member is entitled.
6.07 The Policy shall be construed, regulated and administered under the
laws of the State of New York.
14
<PAGE>
6.08. The masculine pronoun shall mean the feminine wherever appropriate.
ARTICLE 7. Amendment or Termination.
The Board of Directors reserves the right to modify or to amend, in whole
or in part, or to terminate, this Policy at any time provided, however, no such
modification or amendment or termination (except to improve benefits or increase
eligibility) shall be effective until twenty-four (24) months after its adoption
by the Board of Directors.
15
Exhibit 10(iii)(A)(ix)
Description of Agreement between
Jerald L. Maurer and
Melville Corporation
Melville Corporation ("Melville") has agreed to pay Jerald L. Maurer
eighteen (18) months base salary if his employment is terminated other than for
cause during his first three years of employment. Melville has also agreed to
pay Mr. Maurer a retirement benefit of $48,000 a year beginning at age 62 if he
remains employed by the Corporation until January 1, 1996. This benefit will be
replaced when he reaches age 62, if he is still employed by the Corporation at
such time, by the Supplemental Executive Retirement Plan except that the annual
benefit payable under such plan shall be as follows: if he retires at age 62, he
will be entitled to receive 35% of final compensation; if he retires at age 63,
he will be entitled to receive 40% of final compensation; if he retires at age
64, he will be entitled to receive 45% of final compensation; and if he retires
at age 65, he will be entitled to receive 50% of final compensation.
Exhibit 10(iii)(A)(x)
Description of Agreement between
Harvey Rosenthal and
Melville Corporation
In consideration of his acceptance of the position of President and Chief
Operating Officer, in the event Melville Corporation ("Melville") terminates
Harvey Rosenthal's employment at any time for other than cause, Melville has
agreed to pay Mr. Rosenthal his then annual base salary for a period of two
years commencing upon termination. Such payments shall be made in 24 monthly
installments and medical and dental coverage shall continue during this period.
Exhibit 11
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
($ and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Net earnings $ 307,470 $ 331,790 $ 133,429
Less: Preferred dividends, net 17,027 16,807 15,724
--------- --------- ---------
Net earnings used to calculate
primary earnings per share $ 290,443 $ 314,983 $ 117,705
========= ========= =========
Weighted average number of shares outstanding 105,481 105,069 104,418
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 47 281 510
--------- --------- ---------
Weighted average number of shares used to
compute primary earnings per share 105,528 105,350 104,928
========= ========= =========
Primary earnings per share $ 2.75 $ 2.99 $ 1.12
========= ========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net earnings $ 307,470 $ 331,790 $ 133,429
Less: Preferred dividends 53 53 54
--------- --------- ---------
Net earnings used to calculate fully diluted
earnings per share, before adjustments 307,417 331,737 133,375
Less: Adjustments resulting principally from the
assumed conversion of the Series One ESOP
Convertible Preference Stock, net of tax benefit 557 510 452
--------- --------- ---------
Net earnings used to calculate fully diluted
earnings per share $ 306,860 $ 331,227 $ 132,923
========= ========= =========
Weighted average number of shares used to
compute primary earnings per share 105,481 105,069 104,418
Add: Weighted average shares of Series One
Convertible Preference Stock assuming
conversion 7,339 6,830 6,602
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 47 293 652
Add: Weighted average number of shares which
could have been issued upon conversion of
4 7/8% debentures 3 6 6
--------- --------- ---------
Weighted average number of shares used to compute
fully diluted earnings per share 112,870 112,198 111,678
========= ========= =========
Fully diluted earnings per share $ 2.72 $ 2.95 $ 1.19
========= ========= =========
</TABLE>
Exhibit 12
<TABLE>
<CAPTION>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in thousands)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed Charges: (1)
Interest Expense $ 34,113 $ 25,846 $ 26,519 $ 30,489 $ 23,822
Interest Capitalized 305 583 124 748 1,930
Interest Portion of Operating Leases 180,000 166,000 160,000 149,000 124,000
Interest Portion of Capital Leases 2,973 3,390 4,030 4,507 4,983
Amortization of Debt Expense 127 127 127 127 127
--------- --------- --------- --------- ---------
Total Fixed Charges $ 217,518 $ 195,946 $ 190,800 $ 184,871 $ 154,862
========= ========= ========= ========= =========
Adjusted Fixed Charges:
Total Fixed Charges $ 217,518 $ 195,946 $ 190,800 $ 184,871 $ 154,862
Interest Capitalized 305 583 124 748 1,930
--------- --------- --------- --------- ---------
Adjusted Fixed Charges $ 217,213 $ 195,363 $ 190,676 $ 184,123 $ 152,932
========= ========= ========= ========= =========
Earnings:
Earnings before Income Taxes, Minority Interests
and Cumulative Effect of Change in
Accounting Principle (2) $ 578,106 $ 599,527 $ 335,496 $ 640,098 $ 687,338
Adjusted Fixed Charges 217,213 195,363 190,676 184,123 152,932
--------- --------- --------- --------- ---------
$ 795,319 $ 794,890 $ 526,172 $ 824,221 $ 840,270
========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges 3.66 4.06 2.76 4.46 5.43
========= ========= ========= ========= =========
</TABLE>
(1) The Company formed an Employee Stock Ownership Plan effective January 1,
1989. On June 23, 1989, the ESOP Trust borrowed $357.5 million
from qualified lenders, the proceeds of which were used to purchase a new
series of preference stock issued by the Company. The loan to the ESOP
Trust has been guaranteed by the Company. Annualized dividends on
preference stock totaled $24.9 million in 1994, $25.3 million in 1993,
$25.8 million in 1992, $26.0 million in 1991 and $26.1 million in 1990.
These amounts are not reflected in the calculation above.
(2) 1992 reflects the impact of the strategic realignment charge of $346,979.
Exhibit 13
FINANCIAL HIGHLIGHTS
Melville Corporation 1994 Annual Report
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
($ and shares in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------------
Operating Results 1994 1993 % Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $11,285,561 $10,435,401 8.1
Operating Profit 610,742 623,337 (2.0)
Earnings before Income Taxes and Minority Interests 578,106 599,527 (3.6)
Net Earnings 307,470 331,790 (7.3)
Dividends on Common Stock 160,422 159,686 0.5
Dividends on Preferred and Preference Stock 24,929 25,248 (1.3)
------------------------------------------------------------------------------------------------------------------------------------
Per Share of Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 2.75 $ 3.00 (8.3)
Dividends 1.52 1.52 --
------------------------------------------------------------------------------------------------------------------------------------
Financial Position at Year End
------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents $ 117,035 $ 80,971 44.5
Inventories 2,138,243 1,858,772 15.0
Working Capital 1,007,757 1,091,323 (7.7)
Shareholders' Equity 2,381,605 2,246,846 6.0
------------------------------------------------------------------------------------------------------------------------------------
Key Percentages
------------------------------------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Net Sales 5.4 6.0
Earnings before Income Taxes and Minority Interests
as a Percentage of Net Sales 5.1 5.7
Net Earnings as a Percentage of Net Sales 2.7 3.2
Return on Beginning Shareholders' Equity 13.7 16.0
------------------------------------------------------------------------------------------------------------------------------------
Statistics
------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 105,481 105,069 0.4
Number of Stores 7,378 7,282 1.3
Number of Associates 117,414 111,082 5.7
Number of Common Shareholders 7,200 7,600 (5.3)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
30 Melville Corporation 1994 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Melville Corporation and Subsidiary Companies
Financial Condition
----------------------------------------------------------------------------
($ in millions) 1994 1993 1992
----------------------------------------------------------------------------
Cash and cash
equivalents $117.0 $ 81.0 $145.1
Cash flows provided
by operating activities 498.4 435.9 559.4
Daily average of short-
term borrowings 567.4 464.8 542.2
Maximum short-term
borrowings 948.5 875.0 820.0
Short-term borrowings
outstanding at year end 200.0 90.0 -
Net interest expense 32.6 23.8 25.4
----------------------------------------------------------------------------
Ratios
----------------------------------------------------------------------------
Long-term obligations
to total capitalization 12.8% 14.0% 15.3%
Long-term obligations
to shareholders equity 14.7% 16.2% 18.1%
Current ratio 1.6 1.8 1.8
----------------------------------------------------------------------------
The Company's primary source of liquidity is cash provided from its operations.
Since 70% of the Company's earnings occur in the fourth quarter, however, it
utilizes short-term borrowings, primarily commercial paper issuances, to finance
its seasonal inventory needs and capital expenditures throughout the year.
Borrowing levels were higher in 1994 as compared to 1993 due to increased
capital expenditures while earnings were lower.
Net interest expense is a function of interest rates and short-term borrowing
levels. The increase in net interest expense in 1994 relative to 1993 and 1992
reflects higher interest rates as well as higher borrowing levels.
Current assets increased due primarily to a $279.5 million increase in
inventories. The increase in inventories is due to new store openings, the early
receipt of spring merchandise, opportunistic purchases and increased stock
levels required for our larger store formats. Accounts receivable decreased
despite higher sales due to the settlement of a disposition related receivable
included in the 1993 balance. The allowance for doubtful accounts decreased due
to CVS' new pharmacy system, which allows faster verification of third party
coverage. Prepaid expenses decreased as utilization of realignment reserves
resulted in decreased deferred taxes.
Current liabilities increased due to higher accounts payable and notes
payable balances related to the higher inventories. In addition, the timing of
payments, particularly the payment of the 1994 ESOP dividends made after
year-end, as well as salaries, store rentals and state income taxes led to an
increase in accrued expenses.
Capital Expenditures
----------------------------------------------------------------------------
($ in millions)
1994 1993 1992
----------------------------------------------------------------------------
Capital expenditures $421.4 $386.7 $304.3
----------------------------------------------------------------------------
Expenditures in all years were principally for improvements to new and existing
store locations, store equipment and information systems. Capital expenditures
for 1995 are estimated at $325.0 million and are primarily for new store
openings, continuing improvements to stores and continued investments in
information systems and distribution centers.
Results of Operations
----------------------------------------------------------------------------
($ in millions, except
per share amounts) 1994 1993 1992
----------------------------------------------------------------------------
Net sales $11,285.6 $10,435.4 $10,432.8
Same store sales increase 3.3% 0.1% 3.2%
----------------------------------------------------------------------------
Operating profit before
realignment charge $ 610.7 $ 623.3 $ 707.9
Realignment charge - - 347.0
Operating profit 610.7 623.3 360.9
Net earnings before
realignment charge and
accounting change 307.5 331.8 381.4
----------------------------------------------------------------------------
Net earnings $ 307.5 $ 331.8 $ 133.4
----------------------------------------------------------------------------
Net earnings per share
before realignment
charge and accounting
change $ 2.75 $ 3.00 $ 3.50
Net earnings per share 2.75 3.00 1.13
----------------------------------------------------------------------------
Percentage of net sales
----------------------------------------------------------------------------
Cost of goods sold,
buying and
warehousing costs 64.3 63.9 62.6
Store operating, selling,
general and
administrative expenses 28.5 28.3 28.7
----------------------------------------------------------------------------
Net Sales
Consolidated net sales for the year ended December 31, 1994 were $11.3 billion
representing an 8.1% increase over 1993. Sales for the fourth quarter of 1994,
which included six fewer selling days than the fourth quarter of 1993, were $3.7
billion, an increase of 4.3% over the prior year. The consolidated operating
results, however, exclude those of Chess King, Prints Plus and Accessory Lady
after their dispositions on May 17, May 29, and October 16, 1993, respectively.
<PAGE>
Melville Corporation 1994 Annual Report 31
Adjusting for these factors, consolidated net sales would have increased 9.4%
for the year and 4.4% for the quarter. CVS, Kay-Bee, and Linens 'n Things
generated positive sales growth throughout the year while disappointing
performances at Wilsons and Thom McAn offset these improvements.
Consolidated net sales in 1993 were impacted by the 1993 dispositions and the
exclusion of sales of the stores designated to be closed by Thom McAn and
Kay-Bee under the 1992 strategic realignment program. Adjusting for these
factors, net sales in 1993 increased 4.8%.
Increases in consolidated net sales differ from same store sales increases
mainly due to acquisitions, dispositions and store openings and closings. The
1994 increase in same store sales was due primarily to very strong performances
at CVS and Kay-Bee offset by poor results at Marshalls and Wilsons. The lower
same store sales increase in 1993 resulted primarily from weakness in the
apparel and footwear segments.
Net Earnings
Consolidated net earnings for 1994 were negatively impacted by disappointing
performances in our apparel and footwear segments, and by costs related to the
Company's guarantees for leased properties of businesses sold to purchasers who
subsequently filed for bankruptcy protection. In addition to the $5.8 million
pre-tax reserve established last year for anticipated lease settlement costs for
the remaining Freddy's leases, an additional pre-tax reserve of $17.5 million
was set aside, $14.2 million of which was recorded in the fourth quarter, to
cover anticipated future obligations. These obligations relate principally to
Chess King leases rejected in bankruptcy by Merry-Go-Round Enterprises, the
purchaser of Chess King. Management is confident that these reserves are
adequate to cover the Company's obligations under these guarantees.
In 1993, net earnings were increased by $10.0 million due to a change in the
Company's method of determining retail price indices used in the valuation of
inventories valued on a last-in, first-out basis. This was offset by a
disappointing performance in our apparel segment, a gross margin decline at CVS
and a pre-tax $4.0 million reserve for the loss on sale of the note received in
connection with the sale of Chess King.
Under the strategic realignment program formulated during the fourth quarter
of 1992, the Company recorded an after-tax, non-cash charge of $222.0 million
($2.13 per share), and elected to record an after-tax, non-cash charge of $22.6
million ($0.21 per share) related to its change in accounting for postretirement
benefits.
Net earnings per share declined due to the factors noted above.
Adjusted to exclude the impact of the real estate costs, net earnings per share
in 1994 would have been $2.86. Adjusted to exclude the impact of the two special
charges, net earnings per share in 1992 would have been $3.50.
Strategy Development and Review
At year-end, the Company initiated a comprehensive strategic review, the
objective of which is to maximize the Company's sales and profits by examining
its mix of businesses.
By the end of 1994, the Company has completed many of the objectives of the
1992 strategic realignment program. To date, the Company has closed over 300
Thom McAn stores, and about 200 of the Kay-Bee and Linens 'n Things stores
designated to be closed or converted under the program. In 1993, three
divisions, Chess King, Prints Plus and Accessory Lady, were sold and accelerated
remodeling programs at CVS and Marshalls were completed. To date, $301.6 million
of the pre-tax amount recorded has been utilized.
Costs and Expenses
Cost of goods sold, buying and warehousing costs continue to increase as a
percentage of consolidated net sales, reflecting the increased proportion of the
prescription drugs, health and beauty care segment to total operations,
compounded by continued pressure on third party providers to offer prescriptions
at lower prices. In addition, lower initial markon and increased markdowns in
our other segments have contributed to the erosion of gross margin.
Store operating, selling, general and administrative expenses increased as a
percentage of consolidated net sales in 1994 as compared to a decrease in 1993.
The 1994 increase resulted from fixed costs which were not adequately leveraged
due to sales shortfalls at several divisions, which offset favorable trends in
variable expense categories. Additionally, 1994 included lease settlement costs
related to guarantees of Chess King and Freddy's stores sold. Excluding the
effect of these one-time costs, the ratio of store operating, selling, general
and administrative expenses as a percentage of consolidated net sales was flat
with the prior year.
The decrease in the ratio of store operating, selling, general and
administrative expenses as a percentage of consolidated net sales in 1993
stemmed from the success of the various cost containment programs underway which
have enabled the Company to make significant progress in reducing its variable
cost structure.
Accounting Changes
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
112, "Employers' Accounting for Postemployment Benefits", effective January 1,
1994, the impact of which was immaterial.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes", the impact of which was also immaterial.
In 1992, the Company adopted SFAS No. 106,"Employers' Accounting for
Postretirement Benefits Other Than Pensions", and recorded a one-time,
after-tax, non-cash charge of $22.6 million to recognize the cumulative effect
of the accounting change.
<PAGE>
32 Melville Corporation 1994 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Melville Corporation and Subsidiary Companies
Prescription Drugs, Health and Beauty Care
------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
------------------------------------------------------------------------------
Net sales $4,330.1 $3,948.2 $3,632.1
Operating profit before
realignment charge 227.7 195.7 208.6
Operating profit 227.7 195.7 149.2
------------------------------------------------------------------------------
Percent change from prior year
------------------------------------------------------------------------------
Net sales 9.7 8.7 3.0
Same store sales 6.0 5.7 7.7
Operating profit before
realignment charge 16.3 (6.2) 1.2
Operating profit 16.3 31.2 (27.6)
------------------------------------------------------------------------------
Percent of consolidated total
------------------------------------------------------------------------------
Net sales 38.4 37.9 34.9
Operating profit* 35.2 30.8 40.3
------------------------------------------------------------------------------
*Before corporate expenses.
CVS achieved very favorable increases in both net sales and same store sales in
1994. Lower margined pharmacy sales increased 14.7% in 1994 and 24.1% in 1993
due to an expansion of the division's managed care business and the ability of
the company to capitalize on its dominant market share. Various micro-marketing
initiatives, and an expansion of private label merchandise lines, also helped to
increase front store sales.
Net sales in 1993 reflect the success of the "Peoples Celebration Event"
launched in late May, 1993 to reintroduce these stores to the Washington, D.C.
market. Same store sales increased 7.0% in the fourth quarter of 1993 compared
to 6.2% in 1992.
Net sales in 1992 exclude the Freddy's division sold in 1991 and the CVS
stores in California sold in February, 1992. Adjusting for these dispositions,
net sales would have increased 11.5% in 1992.
Operating profit in 1994 increased despite the larger proportion of pharmacy
business as 1993 investments in technology yielded lower operating costs and
better inventory control, resulting in lower markdowns.
Operating profit decreased in 1993 due to the impact of increased lower
margined prescription sales and incremental costs of rolling out new point of
sale and pharmacy systems.
The 1992 realignment charge related principally to the Peoples Drug Stores
remodeling program which was completed in 1993.
Apparel
------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
------------------------------------------------------------------------------
Net sales $3,538.9 $3,395.9 $3,486.1
Operating profit before
realignment charge 161.1 181.9 230.3
Operating profit 161.1 181.9 125.9
------------------------------------------------------------------------------
Percent change from prior year
------------------------------------------------------------------------------
Net sales 4.2 (2.6) 7.5
Same store sales (1.5) (3.6) 3.1
Operating profit before
realignment charge (11.5) (21.0) 3.3
Operating profit (11.5) 44.5 (43.5)
------------------------------------------------------------------------------
Percent of consolidated total
------------------------------------------------------------------------------
Net sales 31.3 32.5 33.4
Operating profit* 24.9 28.6 34.0
------------------------------------------------------------------------------
*Before corporate expenses.
The decline in same store sales for this segment reflects the prolonged
nationwide slump in apparel sales, especially the off-price channel, as
consumers shifted spending to durables, home related goods and consumer
electronics. Underscoring the national trend, Marshalls' gifts and domestics
departments experienced a 19.6% increase in net sales while its total sales
increased 6.4% over 1993. The expansion of Bob's also contributed to the growth
in net sales. Sales decreased at Wilsons for a second year due to weakness in
the leather outerwear market which was compounded by overall warm temperatures
in fall and early winter.
The 1993 decrease in net sales was due to the sale of Chess King and
Accessory Lady and lower net sales at Wilsons. Adjusting for the divisions sold,
net sales in the segment would have increased 2.3% in 1993.
Operating profit decreased in 1994 and 1993 because of lower same store sales
and gross margins resulting from the heightened promotional activity throughout
the apparel industry. This was partially offset by the exclusion of the
unprofitable Chess King division and strong control of variable expenses at both
Marshalls and Wilsons.
Despite the negative impact of decreased sales and profits at Chess King,
operating profit in 1992 before the realignment charge increased due to strong
sales at Marshalls, coupled with strict expense control.
The realignment charge recorded in 1992 related to the write-down of certain
non-performing assets as well as an estimated loss on sale for the Chess King
and Accessory Lady divisions.
<PAGE>
Melville Corporation 1994 Annual Report 33
Footwear
------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
------------------------------------------------------------------------------
Net sales $1,839.9 $1,713.1 $1,840.0
Operating profit before
realignment charge 158.6 169.0 180.0
Operating profit 158.6 169.0 92.0
------------------------------------------------------------------------------
Percent change from prior year
------------------------------------------------------------------------------
Net sales 7.4 (6.9) 5.3
Same store sales 2.4 (2.5) (1.8)
Operating profit before
realignment charge (6.2) (6.1) 11.2
Operating profit (6.2) 83.7 (43.2)
------------------------------------------------------------------------------
Percent of consolidated total
------------------------------------------------------------------------------
Net sales 16.3 16.4 17.6
Operating profit* 24.5 26.6 24.9
------------------------------------------------------------------------------
*Before corporate expenses.
Net sales increases in 1994 at Meldisco and Footaction were offset by a decline
at Thom McAn, resulting from the discontinuation of its men's athletic and
children's departments in late 1993 as well as the contraction of this chain.
Net sales decreased in 1993 due to the exclusion from operations of about 390
stores designated to be closed under the strategic realignment program and the
discontinuation of product lines. Adjusting for stores excluded at Thom McAn,
net sales would have increased 2.2% in 1993.
Net sales increased in 1992 due to the acquisition of Footaction in November,
1991 coupled with a modest sales increase at Meldisco, offset by a decline at
Thom McAn. Adjusting to exclude the impact of Footaction, net sales would have
decreased 0.1% in 1992.
Operating profit in 1994 decreased due to weak same store sales at Thom McAn,
increased markdowns throughout the segment and higher operating costs incurred
from the rapid rollout of 32 new Footaction superstores, 27 of which were opened
in the second half of the year. In addition, about $5.0 million of one-time
costs, principally at Meldisco related to Kmart store closings and other
contingencies, negatively impacted profits.
Operating profit decreased in 1993 due to lower same store sales,
particularly at Thom McAn, and higher markdowns, which offset an increase in
initial markon at Meldisco. Meldisco's direct purchasing program in the Far East
and Footaction's success in negotiating more favorable volume discounts, as well
as strong expense control, contributed to the increase in operating profit
before the realignment charge in 1992.
The realignment charge recorded in 1992 provided for the costs of closing or
redeploying about 390 Thom McAn stores. Of the remaining stores designated to be
closed, about 50 are planned for 1995.
Toys and Home Furnishings
------------------------------------------------------------------------------
($ in millions) 1994 1993 1992
------------------------------------------------------------------------------
Net sales $1,576.7 $1,378.2 $1,474.7
Operating profit before
realignment charge 99.4 89.1 98.1
Operating profit 99.4 89.1 2.9
------------------------------------------------------------------------------
Percent change from prior year
------------------------------------------------------------------------------
Net sales 14.4 (6.5) 7.7
Same store sales 8.3 (2.5) 1.6
Operating profit before
realignment charge 11.5 (9.1) 7.3
Operating profit 11.5 2,946.4 (96.8)
------------------------------------------------------------------------------
Percent of consolidated total
------------------------------------------------------------------------------
Net sales 14.0 13.2 14.1
Operating profit* 15.4 14.0 0.8
------------------------------------------------------------------------------
*Before corporate expenses.
Significant increases in net sales were reported at Kay-Bee, as it enjoyed a
strong year in most merchandise categories, and at Linens 'n Things, due to the
successful rollout of its superstore format and increased consumer spending in
home furnishings and related products.
Sales in 1993 benefitted from strong performances at Linens 'n Things and
This End Up, offset by the disposition of Prints Plus and a decrease at Kay-Bee.
The 1993 decline at Kay-Bee was due to the exclusion from operations of about
240 stores designated to be closed under the strategic realignment program and
the lack of a "blockbuster" toy. Adjusting for the stores excluded and sold, net
sales in 1993 would have increased 2.6% over 1992.
In 1992, net sales increased in all of the businesses in this segment except
for a slight decrease at This End Up. Adjusting for the effect of K&K toy stores
acquired in 1991, net sales would have increased 5.0% in 1992.
Operating profit improved in 1994 because of very strong sales growth and
strict control of variable expenses. In addition, a favorable LIFO adjustment
offset the decrease in gross margin caused by the implementation of sharper
pricing strategies at Kay-Bee early in the year.
Operating profit declined in 1993 due to decreases in same store sales and
initial markon at Kay-Bee, offset partially by a pre-tax LIFO adjustment of
about $14.0 million and aggressive expense control at all divisions in this
segment. Favorable economic trends in the housing industry and an expansion of
merchandise offerings at Linens 'n Things and This End Up also contributed to an
increase in operating profit before realignment in 1992.
The 1992 realignment charge provided primarily for costs of closing or
redeploying about 240 stores at Kay-Bee and converting Linens 'n Things stores
to its superstore format. Of the remaining Kay-Bee stores designated to be
closed, about 25 are planned for 1995.
<PAGE>
Melville Corporation 1994 Annual Report 35
CONSOLIDATED STATEMENTS OF EARNINGS
Melville Corporation and Subsidiary Companies
($ in thousands, except per share data)
--------------------------------------------------------------------------------
Years Ended December 31 1994 1993 1992
--------------------------------------------------------------------------------
Net sales $11,285,561 $10,435,401 $10,432,843
Cost of goods sold, buying
and warehousing cost 7,252,568 6,664,395 6,529,239
--------------------------------------------------------------------------------
4,032,993 3,771,006 3,903,604
--------------------------------------------------------------------------------
Store operating, selling, general
and administrative expenses 3,215,985 2,956,081 2,994,723
Depreciation and amortization 206,266 191,588 201,008
Realignment charge -- -- 346,979
--------------------------------------------------------------------------------
3,422,251 3,147,669 3,542,710
--------------------------------------------------------------------------------
Operating profit 610,742 623,337 360,894
Interest expense, net 32,636 23,810 25,398
--------------------------------------------------------------------------------
Earnings before income taxes, minority
interests and cumulative effect of
change in accounting principle 578,106 599,527 335,496
Provision for income taxes 218,741 220,441 125,696
--------------------------------------------------------------------------------
Earnings before minority interests
and cumulative effect of change in
accounting principle 359,365 379,086 209,800
Minority interests in net earnings 51,895 47,296 53,820
--------------------------------------------------------------------------------
Earnings before cumulative effect of
change in accounting principle 307,470 331,790 155,980
Cumulative effect of change in
accounting principle, net -- -- 22,551
--------------------------------------------------------------------------------
Net earnings $ 307,470 $ 331,790 $ 133,429
--------------------------------------------------------------------------------
Per Share of Common Stock
--------------------------------------------------------------------------------
Earnings before cumulative effect
of change in accounting principle $ 2.75 $ 3.00 $ 1.34
Cumulative effect of change
in accounting principle, net -- -- 0.21
--------------------------------------------------------------------------------
Net earnings per share
of common stock $ 2.75 $ 3.00 $ 1.13
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
36 Melville Corporation 1994 Annual Report
CONSOLIDATED BALANCE SHEETS
Melville Corporation and Subsidiary Companies
($ in thousands)
-------------------------------------------------------------------------------
As of December 31 1994 1993
-------------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 117,035 $ 80,971
Accounts receivable, net 229,833 243,998
Inventories 2,138,243 1,858,772
Prepaid expenses 165,388 200,290
-------------------------------------------------------------------------------
Total Current Assets 2,650,499 2,384,031
-------------------------------------------------------------------------------
Property, plant, equipment and leasehold
improvements, at cost:
Land 32,917 25,584
Buildings and improvements 222,939 186,025
Fixtures and equipment 1,246,682 1,051,152
Leasehold improvements 687,095 623,403
-------------------------------------------------------------------------------
2,189,633 1,886,164
Less accumulated depreciation and amortization 674,727 583,964
-------------------------------------------------------------------------------
Net property, plant, equipment and
leasehold improvements 1,514,906 1,302,200
Leased property under capital leases,
net of accumulated amortization 12,016 14,677
Deferred charges and other assets 109,641 113,455
Goodwill, net of accumulated amortization
of $94,987 in 1994 and $81,531 in 1993 448,427 443,678
-------------------------------------------------------------------------------
Total Assets $4,735,489 $4,258,041
-------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
Melville Corporation 1994 Annual Report 37
($ and shares in thousands, except per share data)
-------------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------------
Liabilities
-------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 660,691 $ 559,469
Accrued expenses 659,502 558,270
Notes payable 200,000 90,000
Federal income taxes 102,008 74,376
Other current liabilities 20,541 10,593
-------------------------------------------------------------------------------
Total Current Liabilities 1,642,742 1,292,708
-------------------------------------------------------------------------------
Long-term debt 331,340 341,763
Deferred income taxes 81,702 83,333
Other long-term liabilities 188,126 198,203
Minority interests in subsidiaries 108,644 93,858
-------------------------------------------------------------------------------
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 in 1994 and 1993; 4 shares
held in treasury in 1994 and 1993 1,330 1,330
-------------------------------------------------------------------------------
Shareholders' Equity
-------------------------------------------------------------------------------
Preference stock, par value $1.00, authorized
50,000 shares; Series One ESOP Convertible,
liquidation value $53.45; issued and outstanding
6,379 in 1994 and 6,499 in 1993 340,948 347,346
Guaranteed ESOP Obligation (328,096) (328,570)
Common stock, par value $1.00, authorized
300,000 shares, issued 111,454 and 111,278,
outstanding 105,642 and 105,346, net of
treasury shares, in 1994 and 1993, respectively 111,454 111,278
Capital surplus 48,122 42,123
Retained earnings 2,494,383 2,364,322
Cumulative translation adjustment (1,421) --
Common stock in treasury, at cost; 5,812
and 5,932 shares in 1994 and 1993,
respectively (283,785) (289,653)
-------------------------------------------------------------------------------
Total Shareholders' Equity 2,381,605 2,246,846
-------------------------------------------------------------------------------
Total Liabilities and Equity $ 4,735,489 $ 4,258,041
-------------------------------------------------------------------------------
<PAGE>
38 Melville Corporation 1994 Annual Report
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Melville Corporation and Subsidiary Companies
($ in thousands, except per share data)
-----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, Preference Guaranteed Common Capital Retained Treasury
1994, 1993 and 1992 Stock ESOP Obligation Stock Surplus Earnings Stock
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1991 $ 355,275 $ (342,163) $ 110,678 $ 36,563 $ 2,245,700 $ (315,816)
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings 133,429
Purchase of Series B preferred shares for
treasury (237 shares) 7
Conversion of Series One ESOP Preference
Stock through the reissuance of common
stock held in treasury (50,358 shares) (2,692) 223 2,469
Dividends:
Series One ESOP Convertible Preference
Stock ($3.90 per share), net (15,670)
Series B preferred ($4.00 per share) (54)
Common ($1.48 per share) (154,530)
Exercise of stock options and net shares
awarded under stock plans 469 16,491 (85)
Conversion of Subordinated Debentures 3 18
Reduction of Guaranteed ESOP Obligation 6,286
-----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1992 352,583 (335,877) 111,150 53,302 2,208,875 (313,432)
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings 331,790
Reissuance of common stock held in treasury
for business acquired (387,110 shares) (16,459) 149 18,976
Purchase of Series B preferred shares for
treasury (75 shares) 3
Conversion of Series One ESOP Preference
Stock through the reissuance of common
stock held in treasury (97,987 shares) (5,237) 434 4,803
Dividends:
Series One ESOP Convertible Preference
Stock ($3.90 per share), net (16,753)
Series B preferred ($4.00 per share) (53)
Common ($1.52 per share) (159,686)
Exercise of stock options and net shares
awarded under stock plans 128 4,843
Reduction of Guaranteed ESOP Obligation 7,307
-----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1993 347,346 (328,570) 111,278 42,123 2,364,322 (289,653)
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings 307,470
Conversion of Series One ESOP Preference
Stock through the reissuance of common
stock held in treasury (119,696 shares) (6,398) 530 5,868
Dividends:
Series One ESOP Convertible Preference
Stock ($3.90 per share), net (16,934)
Series B preferred ($4.00 per share) (53)
Common ($1.52 per share) (160,422)
Exercise of stock options and net shares
awarded under stock plans 173 5,447
Conversion of Subordinated Debentures 3 22
Reduction of Guaranteed ESOP Obligation 474
-----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1994 $ 340,948 $ (328,096) $ 111,454 $ 48,122 $ 2,494,383 $ (283,785)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Melville Corporation 1994 Annual Report 39
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Melville Corporation and Subsidiary Companies
($ in thousands)
----------------------------------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 307,470 $ 331,790 $ 133,429
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Realignment charge -- -- 346,979
Cumulative effect of change in accounting principle -- -- 37,587
Depreciation and amortization 206,266 191,588 201,008
Minority interests in net earnings 51,895 47,296 53,820
Increase (decrease) in deferred income taxes and other noncash items 1,993 15,595 (93,417)
Change in assets and liabilities, excluding acquisitions and dispositions:
(Increase) decrease in accounts receivable, net (15,013) 33,484 (31,728)
Increase in inventories (266,069) (86,344) (25,184)
Increase in prepaid expenses, deferred charges and other assets (14,123) (14,392) (26,239)
Increase (decrease) in accounts payable and accrued expenses 125,849 (125,150) (10,335)
Increase (decrease) in Federal income taxes payable
and other liabilities 100,093 42,016 (26,509)
----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 498,361 435,883 559,411
----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property, plant, equipment and leasehold improvements (421,375) (386,724) (304,345)
Proceeds from the sale or disposal of property, plant, equipment
and leasehold improvements, leased property under capital leases,
and operations or assets sold 86,899 97,940 81,655
Acquisitions, net of cash (36,556) (41,534) (25,687)
----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (371,032) (330,318) (248,377)
----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Dividends paid or payable (225,500) (245,635) (239,467)
Additions to (reductions of) notes payable 110,000 90,000 (50,000)
Increase (decrease) in book overdrafts 26,931 (6,701) 39,050
Proceeds from the issuance of common stock 3,152 5,799 15,537
Reductions of long-term debt and obligations under capital leases (4,423) (13,190) (9,641)
Effect of currency fluctuation (1,421) -- --
Other (4) (5) (49)
----------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (91,265) (169,732) (244,570)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 36,064 (64,167) 66,464
Cash and cash equivalents at beginning of year 80,971 145,138 78,674
----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 117,035 $ 80,971 $ 145,138
----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
40 Melville Corporation 1994 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Melville Corporation and Subsidiary Companies
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of all subsidiary companies including foreign subsidiaries whose
results of operations are not material. The minority interests represent the 49%
participation of Kmart Corporation in the ownership of all retail subsidiaries
formed or to be formed from July, 1967 until May 1, 1995 for the purpose of
operating leased shoe departments in Kmart stores. All intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents: Cash equivalents consist of highly liquid
instruments with maturities of three months or less and are stated at cost which
approximates market. The Company's cash management program utilizes zero balance
accounts. Accordingly, all book overdraft balances have been reclassified to
current liabilities.
Inventories: Inventories are stated at the lower of cost or market.
Inventories of the retail operations are determined primarily by the retail
method with 18.1% valued on a last-in, first-out ("LIFO") basis. Inventories of
the manufacturing operations are determined on a first-in, first-out ("FIFO")
basis.
Fixed Assets: Depreciation and amortization of property, plant, equipment
and leasehold improvements is computed on a straight-line basis, generally over
the estimated useful lives of the assets or, when applicable, the life of the
lease, whichever is shorter. Amortization of leased property under capital
leases is computed on a straight-line basis over the life of the lease.
Capitalized software costs are amortized on a straight-line basis over their
estimated useful lives.
Deferred Charges: Deferred charges, principally beneficial leasehold costs,
are amortized on a straight-line basis, generally over the remaining life of the
leasehold acquired.
Goodwill: The excess of acquisition cost over the fair value of net assets
acquired is amortized on a straight-line basis over periods not to exceed forty
years. Impairment is assessed based on profitability of the related business
relative to planned levels and changes in useful life if disposition of a
business is expected.
Maintenance and Repairs: Maintenance and repairs are charged directly to
expense as incurred. Major renewals or replacements are capitalized after making
necessary adjustments in the asset and accumulated depreciation accounts for the
items renewed or replaced.
Store Opening and Closing Costs: New store opening costs are charged to
expense as incurred. In the event a store is closed before its lease has
expired, the total lease obligation, less sublease rental income, is provided
for in the year of closing.
Advertising Costs: The Company charges production costs of advertising to
expense the first time the advertising takes place.
Federal Income Taxes: The Company and its wholly-owned subsidiaries file a
consolidated Federal income tax return. The tax benefit for dividends on
unallocated shares of Series One Convertible ESOP Preference Stock ("ESOP
Preference Stock") is recorded as a credit to retained earnings.
Accounting Changes: Effective January 1, 1994, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits", the cumulative effect of which was not material to the
consolidated financial statements and is therefore not presented separately.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"), the cumulative effect of which was also
immaterial to the consolidated financial statements and is therefore not
presented separately.
In 1993, the Company changed its method of determining retail price indices
used in the valuation of LIFO inventories.
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106").
Postretirement Benefits: The annual cost of postretirement benefits is funded
as they arise and the cost is recognized over an employee's term of service with
the Company.
Earnings Per Share: Primary earnings per share is computed by dividing net
earnings, after deducting net preferred dividends on redeemable preferred stock
and the ESOP Preference Stock, by the weighted average number of common shares
outstanding during the year.
Fully diluted earnings per share is computed based upon the assumed
conversion of the ESOP Preference Stock into common stock. Net earnings are
reduced by the difference between the current dividend on the ESOP Preference
Stock and the common stock, adjusted for certain nondiscretionary expenses based
on net earnings.
Foreign Currency Translation: The Company translates foreign currency
financial statements by translating balance sheet accounts at the current
exchange rate and income statement accounts at the average rate for the year.
Translation gains and losses are recorded in shareholders' equity, and realized
gains and losses are reflected in income. The balance in the cumulative
translation adjustment account of $1.4 million as of December 31, 1994 relates
principally to the Company's operations in Mexico. Transaction gains and losses
were insignificant.
Reclassifications: Certain reclassifications have been made to the
consolidated financial statements of prior years to conform to the 1994
presentation.
<PAGE>
Melville Corporation 1994 Annual Report 41
Acquisitions
During 1994, the Company acquired the assets of 11 prescription drugs, health
and beauty care stores, 12 apparel stores and three stores selling branded
athletic footwear and apparel, for an aggregate of $36.6 million in cash. These
acquisitions have been accounted for using the purchase method and resulted in
goodwill of $17.3 million. Results of operations are included in the
consolidated financial statements from their respective dates of acquisition.
Pro forma results have not been presented for the effect of these transactions
as the operations are not material to the consolidated financial results of the
Company.
Strategic Realignment Charge
In 1992, the Company recorded a pre-tax strategic realignment charge of $347.0
million to reflect the anticipated costs associated with a program to close or
convert to other formats duplicate or underperforming stores. The charge also
included the write-down of fixed assets and other underperforming assets, losses
from operations through the expected date of closure or lease settlement,
severance and inventory liquidation costs.
Accounts Receivable
Accounts receivable at December 31 consisted of the following:
--------------------------------------------------------------------
($ in thousands) 1994 1993
--------------------------------------------------------------------
Trade accounts $170,296 $216,062
Other 78,395 60,470
--------------------------------------------------------------------
248,691 276,532
Less allowance for doubtful
accounts 18,858 32,534
--------------------------------------------------------------------
$229,833 $243,998
--------------------------------------------------------------------
Inventories
Inventories at December 31 consisted of the following:
-------------------------------------------------------------------
($ in thousands) 1994 1993
-------------------------------------------------------------------
Finished goods $2,131,041 $1,849,651
Work-in-process 645 1,616
Raw materials and supplies 6,557 7,505
-------------------------------------------------------------------
$2,138,243 $1,858,772
-------------------------------------------------------------------
Prior to 1993, the Company used the U.S. Bureau of Labor Statistics indices
to measure inflation or deflation in the valuation of its LIFO inventories. In
1993, internally developed indices were used to more accurately measure price
fluctuations. The net earnings impact of this change on prior years,
individually and cumulatively, is not determinable. The change increased 1993
net earnings by $10.0 million.
Had the FIFO method been used, the carrying value of inventories valued on a
LIFO basis would have increased by $8.1 million and $22.4 million at December
31, 1994 and 1993, respectively.
Prepaid Expenses
Prepaid expenses at December 31 consisted of the following:
-----------------------------------------------------------------
($ in thousands) 1994 1993
-----------------------------------------------------------------
Deferred income taxes $ 97,668 $133,362
Other 67,720 66,928
-----------------------------------------------------------------
$165,388 $200,290
-----------------------------------------------------------------
Accrued Expenses
Accrued expenses at December 31 consisted of the following:
----------------------------------------------------------------
($ in thousands) 1994 1993
----------------------------------------------------------------
Taxes other than Federal
income taxes $143,801 $114,627
Rent 87,811 77,475
Other 427,890 366,168
----------------------------------------------------------------
$659,502 $558,270
----------------------------------------------------------------
Short-Term Borrowing Arrangements
Information regarding short-term borrowings outstanding at December 31 was as
follows:
---------------------------------------------------------------
($ in millions) 1994 1993
---------------------------------------------------------------
Commercial paper $200.0 $ 90.0
Weighted average interest rate 6.0% 3.3%
---------------------------------------------------------------
Lines of credit available $693.5 $630.0
Letters of credit outstanding 433.9 323.4
---------------------------------------------------------------
The Company has available lines of credit with various banks which permit
borrowings at prime or other negotiated interest rates. There were no short-term
borrowings outstanding under these lines of credit at December 31, 1994 and
1993. The Company can also obtain short-term financing through the issuance of
commercial paper and bank loan participation notes, and is not obligated under
any formal or informal compensating balance agreements.
Long-Term Debt
Long-term debt at December 31 consisted of the following:
-------------------------------------------------------------
($ in thousands) 1994 1993
-------------------------------------------------------------
Guaranteed ESOP note, 8.52%,
payable in various installments
through 2008* $340,100 $340,100
Other notes and mortgages payable 8,637 8,944
-------------------------------------------------------------
348,737 349,044
Less current installments 17,397 7,281
-------------------------------------------------------------
$331,340 $341,763
-------------------------------------------------------------
*See Employee Stock Ownership Plan footnote.
<PAGE>
42 Melville Corporation 1994 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Melville Corporation and Subsidiary Companies
A $7.0 million payment for the guaranteed ESOP note was made on January 3,
1995, due to the 1994 calendar. The aggregate long-term debt maturing during
each of the next five years is as follows: $10.4 million in 1995, $13.8 million
in 1996, $17.5 million in 1997, $21.7 million in 1998 and $13.9 million in 1999.
Net interest expense for the years ended December 31 included the following:
------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
------------------------------------------------------------------------------
Interest expense* $34,113 $25,846 $26,681
Interest income and
capitalized interest 1,477 2,036 1,283
------------------------------------------------------------------------------
Net interest expense $32,636 $23,810 $25,398
------------------------------------------------------------------------------
* Excludes interest related to the guaranteed ESOP note but includes interest
costs recognized in connection with the Company's contribution to the ESOP.
Leases
The Company and its subsidiaries lease retail stores and warehouse, plant and
office facilities over periods generally ranging from 5 to 25 years with options
to renew such terms ranging from 5 to 15 years.
At December 31, 1994, the future minimum lease payments under capital leases,
rental payments required under operating leases, and future minimum sublease
rentals excluding lease obligations for closed facilities were as follows:
-------------------------------------------------------------------
Capital Operating
($ in thousands) Leases Leases
-------------------------------------------------------------------
1995 $ 5,974 $ 505,180
1996 5,650 478,941
1997 5,128 445,175
1998 4,420 406,847
1999 4,264 365,259
Thereafter 12,385 1,711,868
-------------------------------------------------------------------
Total $37,821 $3,913,270
Less amount representing
interest 15,586
-------------------------------------------------------------------
Present value of minimum
lease payments $22,235
-------------------------------------------------------------------
Total future minimum sublease
rentals $ 554 $ 43,671
-------------------------------------------------------------------
Net rental expense for all operating leases for the years ended December 31
was as follows:
------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
------------------------------------------------------------------------------
Minimum rentals $538,772 $496,555 $480,505
Contingent rentals 206,906 192,905 207,106
------------------------------------------------------------------------------
745,678 689,460 687,611
Less sublease rentals 9,928 6,286 5,085
------------------------------------------------------------------------------
$735,750 $683,174 $682,526
------------------------------------------------------------------------------
Contingent rentals are principally those for leased shoe departments operated
under license agreements with Kmart Corporation. These agreements are for terms
of 25 years and provide for rental payments based on sales and profits. The
remaining terms of license agreements in existence at December 31, 1994 ranged
from 5 to 25 years.
The balance of contingent rentals relate to other Company operations and are
based only on sales.
Leased property under capital leases at December 31 included:
-----------------------------------------------------------------
($ in thousands) 1994 1993
-----------------------------------------------------------------
Retail facilities $20,399 $25,262
Warehouse, plant and office
facilities 21,809 22,603
-----------------------------------------------------------------
42,208 47,865
Less accumulated amortization 30,192 33,188
-----------------------------------------------------------------
$12,016 $14,677
-----------------------------------------------------------------
Contingencies
In connection with dispositions completed in 1991, 1992 and 1993, Melville
Realty Company, Inc. ("MRC"), a wholly owned subsidiary of the Company,
continued to guarantee rental and other lease-related charges on 501 leases for
retail stores and warehouse and office facilities. The present value of these
minimum rental payments at December 31, 1994 was approximately $117.7 million.
This amount includes $27.5 million related to the sale of Chess King to Merry-
Go-Round Enterprises ("MGRE"), which filed for protection under Chapter 11 of
the United States Bankruptcy Code. Pursuant to the terms of sale to a third
party of a note receivable from MGRE, the Company will be indemnified for 52.5%
of costs incurred under any guarantees for the duration of MGRE's bankruptcy. As
of February 28, 1995, MGRE has rejected 119 leases guaranteed by MRC, which are
not included in the figures above. Although the ultimate liability under these
guarantees is uncertain, reserves totaling $15.0 million remain for potential
losses as of December 31, 1994.
<PAGE>
Melville Corporation 1994 Annual Report 43
Stock Incentive Plans
The Company's 1990 Omnibus Stock Incentive Plan (the "Plan") provides for the
granting of options, restricted stock and other stock-based awards for a maximum
of 5,000,000 shares of common stock to key employees. The Plan replaced the
Company's 1973 and 1987 Stock Option Plans and the 1980 Restricted Stock Plan
("Previous Plans").
Stock options under the Plan are awarded at the fair market value on the date
of grant. The right to exercise these options generally commences one year from
the date of grant and expires ten years after the grant date, provided the
optionee continues to be employed by the Company.
The 1989 Directors' Stock Option Plan ("Directors' Plan") for non-employee
directors ("eligible directors") provides for the granting of options to
purchase a maximum of 150,000 shares of common stock. Any person who becomes an
eligible director receives an initial option grant to purchase 2,000 shares of
common stock, and, on each January 11 after such initial grant through January
11, 1998, is automatically granted an additional option to purchase 1,000
shares. All options are awarded at the fair value on the date of grant.
The right to exercise options granted under the Directors' Plan generally
commences six months from the date of grant and expires ten years after the
grant date, provided the director has served continuously during the exercise
period.
Information with respect to stock option activity under the Plan, the
Previous Plans and the Directors' Plan is as follows:
---------------------------------------------------------
Number Option Price
of Shares Range Per Share
---------------------------------------------------------
Outstanding at
December 31, 1991 2,814,640 $ 12.41 /$54.75
Granted 717,325 44.63 / 48.44
Exercised 460,090 12.41 / 52.00
Cancelled 44,650 36.00 / 52.00
---------------------------------------------------------
Outstanding at
December 31, 1992 3,027,225 $ 18.19 /$54.75
Granted 709,650 41.13 / 53.50
Exercised 126,400 18.19 / 52.00
Cancelled 139,875 39.38 / 52.00
---------------------------------------------------------
Outstanding at
December 31, 1993 3,470,600 $ 18.19 /$54.75
Granted 201,000 30.25 / 41.00
Exercised 76,428 18.19 / 39.38
Cancelled 7,000 45.00
---------------------------------------------------------
Outstanding at
December 31, 1994 3,588,172 $ 26.72 /$54.75
---------------------------------------------------------
Exercisable at
December 31, 1994 3,399,172 $ 26.72 /$54.75
---------------------------------------------------------
The Plan also permits the granting of performance shares, representing rights
to receive cash and/or common stock of the Company based upon certain
performance criteria over a three-year performance period, and performance based
restricted shares, representing rights to receive common stock of the Company
based upon certain performance criteria over a one-year performance period.
Compensation expense related to grants under these provisions is based on
current market price of the Company's common stock and the extent to which
performance criteria are being met.
Information regarding performance shares and performance based restricted
shares is as follows:
----------------------------------------------------------------------
($ in millions) 1994 1993 1992
----------------------------------------------------------------------
Units awarded 77,376 54,301 70,745
Fair market value of units
awarded $ 2.9 $ 2.6 $ 3.4
Shares granted related to
units previously awarded 42,051 - -
Fair market value of shares
granted $ 1.6 $ - $ -
----------------------------------------------------------------------
Restricted stock awards are currently granted under the Plan only in
connection with the hiring or retention of key executives and are subject to
certain conditions. Restrictions are lifted generally three years after the
grant date, provided the executive continues to be employed by the Company.
Information with respect to the restricted shares is as follows:
---------------------------------------------------------------------
($ in millions) 1994 1993 1992
---------------------------------------------------------------------
Shares granted 55,050 2,225 12,265
Fair market value of
shares granted $ 1.9 $ 0.1 $ 0.6
Shares cancelled 1,535 420 2,030
---------------------------------------------------------------------
At December 31, 1994 shares available for grant under the Plan totaled
1,959,660 and 68,000 shares of stock were available for grant under the
Directors' Plan.
Redeemable Preferred Stock
The Company is required to provide $279,000 annually, on December 1, as a
sinking fund to repurchase shares of Series B preferred stock at prices not to
exceed $100 per share. Any balance not so applied within one year is returned to
the general funds of the Company. The difference between the cost of shares
repurchased and par value is reflected in capital surplus.
<PAGE>
44 Melville Corporation 1994 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Melville Corporation and Subsidiary companies
Postretirement Benefits
The Company provides postretirement health benefits at several divisions for
retirees who meet certain eligibility requirements.
Effective January 1, 1992, the Company adopted SFAS No. 106, and recorded an
accumulated postretirement benefit obligation ("APBO") of $37.6 million for
active employees and retirees.
The weighted average discount rate used to determine the APBO was 8.67% and
6.90% at December 31, 1994 and 1993, respectively. The following table reflects
the accrued postretirement benefit cost as of December 31:
------------------------------------------------------------------
($ in thousands) 1994 1993
------------------------------------------------------------------
Retirees $14,335 $19,400
Fully eligible active plan
participants 1,987 2,800
Other active plan participants 8,078 12,000
------------------------------------------------------------------
APBO 24,400 34,200
------------------------------------------------------------------
Unrecognized prior service gain 14,163 15,200
Unrecognized net gain (loss) 6,817 (4,000)
------------------------------------------------------------------
Accrued Postretirement
Benefit Cost $45,380 $45,400
------------------------------------------------------------------
Effective December, 1992, the Company amended these plans to terminate
certain benefits, resulting in a prior service gain of $16.7 million to be
amortized over 13 years. The net periodic cost recorded for the years ended
December 31 was as follows:
----------------------------------------------------------------------
($ in thousands) 1994 1993 1992
----------------------------------------------------------------------
Interest expense $2,000 $2,200 $3,300
Service cost (500)* (1,000)* 2,100
----------------------------------------------------------------------
$1,500 $1,200 $5,400
----------------------------------------------------------------------
* Net of prior service gain amortization.
For measurement purposes, an 11.0% increase in the cost of covered
health-care benefits was assumed for 1994; the rate was assumed to decline
gradually to 6.0% in 2010, and remain at that level thereafter. A 1.0% increase
in the health-care cost trend rate would increase the APBO at December 31, 1994
by $3.1 million, and the 1994 annual expense by $0.4 million.
401(k) Profit Sharing Plan
The Company has a qualified 401(k) Profit Sharing Plan available to full-time
employees who meet the plan's eligibility requirements. This plan, which is also
a defined contribution plan, contains a profit sharing component, with
tax-deferred contributions to each employee based on certain performance
criteria, and also permits employees to make contributions up to the maximum
limits allowed by Internal Revenue Code Section 401(k). Under the 401(k)
component, the Company matches a portion of the employee's contribution under a
predetermined formula based on the level of contribution and years of vesting
service. Company contributions to the plan for both profit sharing and matching
of employee contributions were $18.0 million, $20.3 million and $17.9 million in
1994, 1993 and 1992, respectively.
Employee Stock Ownership Plan
The Company sponsors a defined contribution plan for all full-time employees
through its Employee Stock Ownership Plan ("ESOP").
The ESOP Trust (the "Trust") borrowed $357.5 million through a 20-year loan
guaranteed by the Company and used the proceeds to purchase 6,688,494 shares of
ESOP Preference Stock from the Company. The original liquidation value of the
ESOP Preference Stock is guaranteed by the Company. Dividends are cumulative at
the stated rate or the common stock rate if higher. Information regarding the
ESOP is as follows:
------------------------------------------------------------------------
($ in millions) 1994 1993 1992
------------------------------------------------------------------------
Dividends paid $ - $29.6 $25.8
Dividends accrued 24.9 - 4.3
Annualized dividends 24.9 25.3 25.8
Tax benefit of annualized dividends 10.0 10.1 10.1
Cash contributions* 11.1 7.9 7.4
Interest costs incurred by the Trust 29.0 29.5 29.8
Compensation expense recognized 5.9 5.7 5.5
Interest expense recognized 5.3 5.9 4.7
------------------------------------------------------------------------
* 1994 amount accrued; paid January, 1995.
Contributions to the ESOP, plus the dividends paid on the ESOP Preference
Stock held by the Trust, are used to repay the loan principal and interest. The
difference between the cash contribution and the aggregate expense recognized is
credited to the Guaranteed ESOP Obligation.
<PAGE>
Melville Corporation 1994 Annual Report 45
Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109. The cumulative
effect of this accounting change was not material.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
-------------------------------------------------------------
($ in thousands) 1994 1993
-------------------------------------------------------------
Deferred tax assets:
Employee benefits $ 66,233 $ 53,915
Inventories 33,956 30,852
Other assets 7,895 21,920
-------------------------------------------------------------
Total deferred tax assets 108,084 106,687
-------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 92,118 56,658
-------------------------------------------------------------
Net deferred tax assets $ 15,966 $ 50,029
-------------------------------------------------------------
The provision for income taxes for the years ended
December 31 consisted of the following:
-------------------------------------------------------------------
($ in millions) 1994 1993 1992
-------------------------------------------------------------------
Federal $166.6 $170.2 $ 99.1
State 52.1 50.2 26.6
-------------------------------------------------------------------
$218.7 $220.4 $125.7
-------------------------------------------------------------------
The provision for income taxes includes net deferred tax charges of $36.2
million and $103.4 million in 1994 and 1993, and a net deferred tax benefit of
$97.6 million in 1992. For 1992, deferred income taxes relate principally to
costs associated with the strategic realignment program, the capitalization of
inventory costs, depreciation, employee related benefits, and leased property
under capital leases.
Reconciliations of the effective tax rates to the U.S. statutory income tax
rates are as follows:
------------------------------------------------------------------
Percent of pre-tax income 1994 1993 1992
------------------------------------------------------------------
Effective tax rate 37.8 36.8 37.5
State income taxes, net of
Federal tax benefit (5.9) (5.4) (5.2)
51% owned subsidiaries
excluded from the
consolidated Federal
income tax return 3.0 2.6 4.4
Goodwill (0.8) (0.8) (3.9)
Other 0.9 1.8 1.2
------------------------------------------------------------------
Statutory income tax rates 35.0 35.0 34.0
------------------------------------------------------------------
Supplemental Cash Flow Information
During the years ended December 31, the Company had the following non-cash
financing and investing activities:
-----------------------------------------------------------------
($ in thousands) 1994 1993 1992
-----------------------------------------------------------------
Fair value of
assets acquired $41,832 $ 61,144 $26,417
Cash paid 36,578 38,814 25,691
-----------------------------------------------------------------
Liabilities assumed $ 5,254 $ 22,330 $ 726
-----------------------------------------------------------------
Book value of common
stock issued in
pooling of interests $ - $ 18,976 $ -
Note received for
operations sold - 29,413 -
-----------------------------------------------------------------
Cash payments for income taxes and interest for the years ended December 31
were as follows:
-----------------------------------------------------------------
($ in thousands) 1994 1993 1992
-----------------------------------------------------------------
Income taxes $ 140,789 $157,240 $236,975
Interest (net of
amounts capitalized) 34,113 25,747 26,628
-----------------------------------------------------------------
<PAGE>
46 Melville Corporation 1994 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Melville Corporation and Subsidiary Companies
Summary of Quarterly Results
--------------------------------------------------------------------------------
(Unaudited; $ in thousands, except per share data)
--------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------------
Net Sales
--------------------------------------------------------------------------------
1994 $2,379,839 $2,507,469 $2,737,016 $3,661,237
1993 2,033,011 2,537,395 2,355,376 3,509,619
--------------------------------------------------------------------------------
Gross Margin
--------------------------------------------------------------------------------
1994 $ 800,222 $ 903,227 $ 966,772 $1,362,772
1993 694,749 926,835 853,159 1,296,263
--------------------------------------------------------------------------------
Net Earnings (Loss)
--------------------------------------------------------------------------------
1994 $ (2,505) $ 45,602 $ 51,718 $ 212,655
1993 (21,686) 74,525 41,504 237,447
--------------------------------------------------------------------------------
Net Earnings (Loss) Per Share
--------------------------------------------------------------------------------
1994 Primary $ (0.06) $ 0.39 $ 0.45 $ 1.97
1994 Fully Diluted* (0.06) 0.39 0.45 1.90
1993 Primary (0.24) 0.67 0.35 2.22
1993 Fully Diluted* (0.24) 0.67 0.35 2.12
--------------------------------------------------------------------------------
*Dilutive effect in the fourth quarter due to the assumed conversion of the ESOP
Preference Stock and the seasonality of earnings.
Market Information
Melville Corporation's common stock is listed on the New York Stock Exchange.
Its trading symbol is MES. Information with respect to quarterly trading ranges
(based on low/high stock prices) and dividends paid per share is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
----------------------------------------------------------------------------------------------------------------------------------
Market Price Per Share
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 $ 35 3/4 - 41 3/4 $ 37 1/8 - 41 5/8 $ 34 1/2 - 39 7/8 $ 29 1/2 - 36 5/8 $ 29 1/2 - 41 3/4
1993 46 3/4 - 54 3/4 43 3/4 - 48 1/4 42 1/4 - 47 1/8 38 7/8 - 45 5/8 38 7/8 - 54 3/4
----------------------------------------------------------------------------------------------------------------------------------
Dividends Paid Per Share
----------------------------------------------------------------------------------------------------------------------------------
1994 $ 0.38 $ 0.38 $ 0.38 $ 0.38 $ 1.52
1993 0.38 0.38 0.38 0.38 1.52
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Melville Corporation 1994 Annual Report 47
Segment Information
The Company is a specialty retailer conducting business through retail stores in
four business segments: prescription drugs, health and beauty care; apparel;
footwear; and toys and home furnishings. Information about operations for each
of these segments is summarized as follows:
--------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
--------------------------------------------------------------------------------
Prescription Drugs, Health and Beauty Care
--------------------------------------------------------------------------------
Net sales $ 4,330,099 $ 3,948,197 $ 3,632,066
Operating profit (a)(b) 227,655 195,670 149,182
Identifiable assets at
December 31 (c) 1,662,127 1,592,964 1,492,471
Depreciation and amortization 60,827 56,883 60,233
Additions to property, plant,
equipment and leasehold
improvements (d) 102,047 104,592 111,802
--------------------------------------------------------------------------------
Apparel
--------------------------------------------------------------------------------
Net sales 3,538,928 3,395,926 3,486,065
Operating profit (a)(b) 161,087 181,922 125,893
Identifiable assets at
December 31 (c) 1,528,693 1,334,026 1,366,191
Depreciation and amortization 79,210 75,963 78,566
Additions to property, plant,
equipment and leasehold
improvements (d) 145,032 154,247 105,037
--------------------------------------------------------------------------------
Footwear
--------------------------------------------------------------------------------
Net sales 1,839,883 1,713,093 1,840,022
Operating profit (a)(b) 158,561 168,979 91,984
Identifiable assets at
December 31 (c) 660,197 568,015 572,344
Depreciation and amortization 25,911 20,937 22,293
Additions to property, plant,
equipment and leasehold
improvements (d) 56,503 45,924 26,973
--------------------------------------------------------------------------------
Toys and Home Furnishings
--------------------------------------------------------------------------------
Net sales 1,576,651 1,378,185 1,474,690
Operating profit (a)(b) 99,403 89,138 2,926
Identifiable assets at
December 31 (c) 789,859 655,290 639,764
Depreciation and amortization 37,424 34,797 37,454
Additions to property, plant,
equipment and leasehold
improvements 92,332 70,948 47,191
--------------------------------------------------------------------------------
Consolidated
--------------------------------------------------------------------------------
Net sales $11,285,561 $10,435,401 $10,432,843
Operating profit before
corporate expenses (a)(b) 646,706 635,709 369,985
Corporate expenses excluding
depreciation and amortization (e) 33,070 9,364 6,629
Corporate depreciation and
amortization 2,894 3,008 2,462
--------------------------------------------------------------------------------
Interest expense, net 32,636 23,810 25,398
--------------------------------------------------------------------------------
Earnings before income taxes
and minority interests $ 578,106 $ 599,527 $ 335,496
--------------------------------------------------------------------------------
Identifiable assets at
December 31 (c) $ 4,640,876 $ 4,150,295 $ 4,070,770
Corporate assets 94,613 107,746 131,392
--------------------------------------------------------------------------------
Total assets at December 31 $ 4,735,489 $ 4,258,041 $ 4,202,162
--------------------------------------------------------------------------------
Depreciation and amortization $ 206,266 191,588 201,008
--------------------------------------------------------------------------------
Corporate additions to property
plant, equipment and
leasehold improvements 25,461 11,013 13,342
Total additons to property, plant,
equipment and leasehold improve-
ments(d) $ 421,375 $ 386,724 $ 304,345
--------------------------------------------------------------------------------
(a) Operating profit is defined as total revenues less operating expenses.
(b) In 1992, includes the effect of the strategic realignment charge.
(c) Indentifiable assets include those assets directly related to each
segment's operations.
(d) Excludes acquisition.
(e) Includes general corporate expenses as well as net expenses related to
other corporate managed subsidiaries. Increase in 1994 relates to lease
settlement reserves as well as expansion of centralized services for
operating divisions.
<PAGE>
48 Melville Corporation 1994 Annual Report
FIVE-YEAR FINANCIAL SUMMARY
Melville Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
($ in thousands, except per share data)
-----------------------------------------------------------------------------------------------------------------------------------
Results for the Year 1994 1993 (a) 1992 (b) 1991 1990
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $11,285,561 $10,435,401 $10,432,843 $ 9,886,183 $ 8,686,765
Wages and Compensation 1,403,401 1,338,881 1,315,564 1,257,756 1,053,440
Taxes 448,890 435,033 318,162 439,272 419,038
Earnings before Income Taxes, Minority
Interests and Cumulative Effect of
Change in Accounting Principle 578,106 599,527 335,496 640,098 687,338
Earnings before Cumulative Effect of Change in
Accounting Principle 307,470 331,790 155,980 346,681 385,261
Net Earnings 307,470 331,790 133,429 346,681 385,261
Dividends Declared 185,351 184,934 180,324 174,517 172,210
-----------------------------------------------------------------------------------------------------------------------------------
Per Share of Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before Cumulative Effect of
Change in Accounting Principle $ 2.75 $ 3.00 $ 1.34 $ 3.20 $ 3.59
Net Earnings 2.75 3.00 1.13 3.20 3.59
Dividends 1.52 1.52 1.48 1.44 1.42
Book Value 22.54 21.33 19.83 20.06 17.99
-----------------------------------------------------------------------------------------------------------------------------------
End of Year Position
-----------------------------------------------------------------------------------------------------------------------------------
Current Assets $ 2,650,499 $ 2,384,031 $ 2,429,772 $ 2,359,017 2,103,582
Current Liabilities 1,642,742 1,292,708 1,350,498 1,302,770 1,123,314
Current Ratio 1.6 1.8 1.8 1.8 1.9
Total Assets $ 4,735,489 $ 4,258,041 $ 4,202,162 $ 4,074,259 3,652,504
Total Long-Term Obligations and
Redeemable Preferred Stock 351,762 365,936 376,417 385,483 396,430
Percentage of Long-Term Obligations
to Total Capitalization 12.8 14.0 15.3 15.5 17.6
-----------------------------------------------------------------------------------------------------------------------------------
Property, Plant, Equipment and
Leasehold Improvements
-----------------------------------------------------------------------------------------------------------------------------------
Net of Accumulated Depreciation
and Amortization $ 1,514,906 $ 1,302,200 $ 1,207,871 $ 1,105,287 $ 965,085
Capital Additions(c) 421,375 386,724 304,345 253,072 231,132
-----------------------------------------------------------------------------------------------------------------------------------
Percentage of Net Sales
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before Income Taxes, Minority
Interests and Cumulative Effect of
Change in Accounting Principle 5.1 5.7 3.2 6.5 7.9
Earnings before Cumulative Effect of Change in
Accounting Principle 2.7 3.2 1.5 3.5 4.4
Net Earnings 2.7 3.2 1.3 3.5 4.4
-----------------------------------------------------------------------------------------------------------------------------------
Return on Beginning Shareholders' Equity 13.7% 16.0% 6.4% 18.7% 23.8%
-----------------------------------------------------------------------------------------------------------------------------------
Number of Stores 7,378 7,282 8,213 8,293 7,754
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes stores designated to be closed in connection with the 1992
strategic realignment program.
(b) Includes impact of strategic realignment charge.
(c) Excludes acquisitions.
EXHIBIT 22
PARENTS AND SUBSIDIARIES AS OF DECEMBER 31, 1994
The registrant is the direct parent corporation of the following Minnesota
corporations, the majority of which also operate specialty retail chain stores;
Smart Step H.C., Inc.; Meldisco H.C., Inc.; CVS H.C., Inc.; Bob's H.C., Inc.,
Rosedale Wilsons, Inc.; Rosedale This End Up, Inc.; Rosedale Open Country, Inc.;
Bloomington, MN., L.T., Inc.; Apache-Minnesota Thom McAn, Inc.; Southdale
Kay-Bee Toy, Inc., Marshalls of Roseville, MINN., Inc., Melville Foreign, Inc.,
Melville Mexico H.C., Inc. and Melville Altmex H.C., Inc.
Marshalls of Roseville, MINN., Inc. is the parent corporation of Marshalls
of Richfield, MN., Inc., which is the parent corporation of 535 subsidiaries,
all of which were formed to operate specialty retail stores, all located in the
United States selling primarily apparel for men, women and children.
Southdale Kay-Bee Toy, Inc. is the parent corporation of Mall of America
Kay-Bee Toy, Inc., which is the parent corporation of 680 subsidiaries, all of
which were formed to operate specialty retail stores, all located in the United
States or Puerto Rico, selling primarily toys, games and hobby products.
Rosedale Wilsons, Inc. is the parent corporation of River Hills Wilsons,
Inc., which is the parent corporation of 449 subsidiaries, all of which were
formed to operate specialty retail stores, all located in the United States,
selling primarily leather and suede apparel and accessories.
Melville Foreign, Inc. is the parent corporation of Melville (UK) Holdings,
a United Kingdom company which is the parent corporation of 2 United Kingdom
subsidiaries which were formed to operate speciality retail stores in the United
Kingdom, selling primarily leather and suede apparel and accessories.
1
<PAGE>
Bloomington, MN., L.T., Inc. is the parent corporation of Rockford L.T.,
Inc., which is the parent corporation of 283 subsidiaries, all of which were
formed to operate specialty retail stores, all located in the United States,
selling quality brand name linens, towels, bath and other household items.
Rosedale This End Up, Inc., is the parent corporation of Jefferson Yorktown
This End Up, Inc., which is the parent corporation of 183 subsidiaries, the
majority of which were formed to operate specialty retail stores, located in the
United States or Canada selling a line of casual furniture.
CVS H.C., Inc., is the parent corporation of Nashua Hollis CVS, Inc., which
is the parent corporation of 1,205 subsidiaries, all of which were formed to
operate specialty retail stores located in the United States, selling
prescription drugs, health and beauty care products.
Rosedale Open Country, Inc., is the parent corporation of Mall of America
Fan Club, Inc., which is the parent corporation of 304 subsidiaries all of which
were formed to operate specialty retail stores located in the United States
selling brand name athletic footwear and related apparel for men, women and
children.
Apache-Minnesota Thom McAn, Inc., is the parent corporation of Pheasant
Thom McAn, Inc., which is the parent corporation of 728 subsidiaries all of
which were formed to operate specialty retail stores located in the United
States, Puerto Rico or the U.S. Virgin Islands selling men's and women's
footwear.
Meldisco H.C., Inc. is the parent corporation of Miles Shoes Meldisco
Lakewood, Colorado, Inc., which is the parent corporation (owning 51% of the
capital stock, except for 1,020 subsidiaries in which it owns 100% of all of the
2
<PAGE>
capital stock) of 3,455 subsidiaries all of which were formed to operate leased
footwear departments in Kmart or Pay Less Drug Stores all located in the United
States, Puerto Rico or the Czech Republic or Slovakia.
Melville Mexico H.C., Inc. and Melville Altmex H.C., Inc., are the direct
or indirect parent corporations of four Mexican subsidiaries formed in
connection with the operation of leased footwear departments in Kmart Stores
located in Mexico.
Melville Corporation Singapore Pte. Ltd., a Singapore corporation, is the
parent corporation of Singapore subsidiaries formed to operate 2 leased footwear
departments in Kmart Stores located in Singapore.
Bob's H.C., Inc., is the parent corporation of Amherst MRC, Inc., which is
the parent corporation of 34 subsidiaries which were formed to operate specialty
retail stores located in the United States, selling casual clothing and footwear
for the entire family.
The registrant is also the direct parent corporation of Footaction, Inc., a
Texas corporation, CVS, Inc., a Rhode Island corporation and Pharmacare
Management Services, Inc., a Delaware corporation and the indirect parent
corporation of Marshall's, Inc., a Massachusetts corporation, Kay-Bee Toy &
Hobby Shops, Inc., a Massachusetts corporation, Wilsons House of Suede, Inc., a
California corporation, Linens 'n Things, Inc., a New Jersey corporation,
T.E.U., Incorporated, a Virginia corporation, This End Up, Inc., a Virginia
corporation, This End Up Furniture Company, a North Carolina corporation, T.E.U.
Transportation, Inc., a Virginia corporation, Bob's Inc., a Connecticut
corporation, Peoples Drug Stores, Incorporated, a Maryland corporation, CW
Kay-Bee, Inc., a New York corporation and K & K Kay-Bee, Inc., a Virginia
corporation, all of which are included in the consolidated financial statements
of the registrant.
3
<PAGE>
Several of the subsidiaries referred to in this Exhibit have not yet opened
their stores for business, and several no longer operate any stores. All of the
subsidiaries referred to herein are included in the consolidated financial
statements of the registrant.
The names of other subsidiaries are omitted as, considered in the aggregate
as a single subsidiary, they would not constitute a significant subsidiary.
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Date Schedule
THIS SCHEDULE CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS,
AND THE CONSOLIDATED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 117,035
<SECURITIES> 0
<RECEIVABLES> 170,296
<ALLOWANCES> 18,858
<INVENTORY> 2,138,243
<CURRENT-ASSETS> 2,650,499
<PP&E> 2,189,633
<DEPRECIATION> 674,727
<TOTAL-ASSETS> 4,735,489
<CURRENT-LIABILITIES> 1,642,742
<BONDS> 331,340
<COMMON> 111,454
1,330
0
<OTHER-SE> 2,270,151
<TOTAL-LIABILITY-AND-EQUITY> 4,735,489
<SALES> 11,285,561
<TOTAL-REVENUES> 11,285,561
<CGS> 7,252,568
<TOTAL-COSTS> 7,252,568
<OTHER-EXPENSES> 3,422,251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,636
<INCOME-PRETAX> 578,106
<INCOME-TAX> 218,741
<INCOME-CONTINUING> 307,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307,470
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 0
</TABLE>
