FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 1, 1995
Commission File Number 1-1011
MELVILLE CORPORATION
(Exact Name of registrant as specified in its charter)
NEW YORK 04-1611460
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
One Theall Road, Rye, New York 10580
(Address of principal executive offices) (Zip Code)
(914) 925-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No _____
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at July 29, 1995
----- ----------------------------
Common Stock, $1 par value 105,047,459
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Consolidated Condensed Statements of Earnings -
Second Quarter and Six Months Ended
July 1, 1995 and June 30, 1994 3
Consolidated Condensed Balance Sheets -
As of July 1, 1995, December 31, 1994
and June 30, 1994 4 - 6
Consolidated Condensed Statements of Cash Flows -
Six Months Ended July 1, 1995 and June 30, 1994 7
Notes to Consolidated Condensed Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
Review by Independent Auditors 13
Exhibit I - - Report of Review by Independent Auditors 14
Part II. - Other Information 15
2
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
($ and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
------------------------ -------------------------
July 1, June 30, July 1, June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,770,166 $2,507,469 $5,262,208 $4,887,308
Cost of goods sold, buying
and warehousing costs 1,815,815 1,604,242 3,503,093 3,183,859
---------- ---------- ---------- ----------
954,351 903,227 1,759,115 1,703,449
---------- ---------- ---------- ----------
Store operating, selling, general
and administrative expenses 815,325 762,056 1,596,350 1,504,099
Depreciation and amortization 57,593 52,159 116,508 103,494
---------- ---------- ---------- ----------
872,918 814,215 1,712,858 1,607,593
---------- ---------- ---------- ----------
Operating profit 81,433 89,012 46,257 95,856
Interest expense, net 12,735 5,405 21,349 9,501
---------- ---------- ---------- ----------
Earnings before income taxes
and minority interests 68,698 83,607 24,908 86,355
Income tax provision 23,441 22,975 3,974 23,873
---------- ---------- ---------- ----------
Earnings before minority interests 45,257 60,632 20,934 62,482
Minority interests in net earnings 14,175 15,030 16,300 19,385
---------- ---------- ---------- ----------
Net earnings $ 31,082 $ 45,602 $ 4,634 $ 43,097
========== ========== ========== ==========
Net earnings (loss) per share of common stock $ 0.25 $ 0.39 $ (0.04) $ 0.33
========== ========== ========== ==========
Dividends per share of common stock $ 0.38 $ 0.38 $ 0.76 $ 0.76
========== ========== ========== ==========
Weighted average common shares outstanding 104,892 105,447 105,083 105,404
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of July 1, 1995, December 31, 1994 and June 30, 1994
($ in thousands)
<TABLE>
<CAPTION>
July 1, December 31, June 30,
1995 1994 1994
(Unaudited) (Unaudited)
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 82,664 $ 117,035 $ 70,852
Accounts receivable (net of allowance
for doubtful accounts of $13,914 at
July 1, 1995, $18,858 at
December 31, 1994 and $22,917 at
June 30, 1994) 192,622 229,833 217,819
Inventories:
Finished goods 2,267,228 2,131,041 2,083,544
Work-in-process 2,267 645 201
Raw materials and supplies 15,293 6,557 11,095
---------- ---------- ----------
Total inventories 2,284,788 2,138,243 2,094,840
Prepaid expenses 170,216 165,388 190,580
---------- ---------- ----------
Total Current Assets 2,730,290 2,650,499 2,574,091
---------- ---------- ----------
Property, plant, equipment, leasehold
improvements and leased property under capital
leases, at cost 2,331,499 2,231,841 2,026,720
Less accumulated depreciation and
amortization 765,505 704,919 667,655
---------- ---------- ----------
Net property, plant, equipment, leasehold
improvements and leased property
under capital leases 1,565,994 1,526,922 1,359,065
---------- ---------- ----------
Goodwill (net of accumulated amortization
of $102,177 at July 1, 1995,
$94,987 at December 31, 1994
and $88,043 at June 30, 1994) 441,744 448,427 436,215
Deferred charges and other assets 113,422 109,641 107,745
---------- ---------- ----------
Total Assets $4,851,450 $4,735,489 $4,477,116
========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(Continued)
4
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of July 1, 1995, December 31, 1994 and June 30, 1994
($ and shares in thousands, except per share data)
<TABLE>
<CAPTION>
July 1, December 31, June 30,
1995 1994 1994
(Unaudited) (Unaudited)
---------- ---------- ----------
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Accounts payable $ 672,954 $ 660,691 $ 626,081
Accrued expenses 440,350 659,502 416,276
Notes payable 805,000 200,000 529,100
Federal income taxes payable -- 102,008 8,071
Other current liabilities 11,610 20,541 10,470
---------- ---------- ----------
Total Current Liabilities 1,929,914 1,642,742 1,589,998
---------- ---------- ----------
Long-term debt 331,229 331,340 341,661
Deferred income taxes 86,564 81,702 88,552
Other long-term liabilities 138,651 188,126 167,222
Minority interests in subsidiaries 73,887 108,644 75,423
REDEEMABLE PREFERRED STOCK
Cumulative preferred stock, Series B,
$4.00 dividend, par value $100, redeemable
at par plus accrued dividends; authorized
and issued 17 shares with 4 held
in treasury as of July 1, 1995,
December 31, 1994 and June 30, 1994 1,330 1,330 1,330
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(Continued)
5
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of July 1, 1995, December 31, 1994 and June 30, 1994
($ and shares in thousands, except per share data)
<TABLE>
<CAPTION>
July 1, December 31, June 30,
1995 1994 1994
(Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preference stock, $1.00 par value,
authorized 50,000 shares; Series
One ESOP Convertible, liquidation value $53.45;
6,320 shares issued and outstanding at July 1, 1995,
6,379 at December 31, 1994 and
6,443 at June 30, 1994 $ 337,827 $ 340,948 $ 344,379
Guaranteed ESOP Obligation (321,096) (328,096) (328,570)
Common stock, par value $1.00, authorized
300,000 shares; issued 111,545 at July 1,
1995, 111,454 at December 31, 1994 and
111,385 at June 30, 1994; outstanding,
104,948 at July 1, 1995, 105,642 at
December 31, 1994 and 105,508 at
June 30, 1994, net of shares held in
treasury 111,545 111,454 111,385
Capital surplus 51,382 48,122 45,624
Retained earnings 2,419,110 2,494,383 2,327,043
Cumulative translation adjustment (1,661) (1,421) --
Common stock in treasury, at cost; 6,597
shares at July 1, 1995, 5,812 at
December 31, 1994, and 5,877 at
June 30, 1994 (307,232) (283,785) (286,931)
----------- ----------- -----------
Total Shareholders' Equity 2,289,875 2,381,605 2,212,930
----------- ----------- -----------
Total Liabilities and Equity $ 4,851,450 $ 4,735,489 $ 4,477,116
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
Six Months Ended
----------------------
July 1, June 30,
1995 1994
--------- ---------
Net Cash Used in Operating Activities $(236,325) $(145,860)
--------- ---------
Cash Flows from Investing Activities:
Additions to property, plant, equipment
and leasehold improvements (149,640) (155,815)
Proceeds from sale or disposal of assets 12,340 64,084
Acquisitions, net of cash (937) --
--------- ---------
Net Cash Used in Investing Activities (138,237) (91,731)
--------- ---------
Cash Flows from Financing Activities:
Increase in notes payable 605,000 439,100
Decrease in book overdrafts (99,168) (93,067)
Dividends paid (131,295) (118,469)
Repurchase of common stock (26,309) --
Decrease in long-term debt and obligations under
capital leases (8,666) (2,046)
Proceeds from issuance of common stock 671 1,954
Other (42) --
--------- ---------
Net Cash Provided by Financing Activities 340,191 227,472
--------- ---------
Net decrease in cash and cash equivalents (34,371) (10,119)
Cash and cash equivalents at beginning of year 117,035 80,971
--------- ---------
Cash and Cash Equivalents at End of Period $ 82,664 $ 70,852
========= =========
See accompanying notes to consolidated condensed financial statements.
7
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial
position of the Company as of July 1, 1995 and June 30, 1994 and the
results of operations for the second quarter and six month periods then
ended and cash flows for the six month periods then ended. Because of the
seasonality of the specialty retailing business, operating results of the
Company on a quarterly basis may not be indicative of operating results for
the full year.
2. Certain reclassifications have been made to the consolidated condensed
financial statements of prior periods to conform to the current period
presentation.
3. Primary net earnings (loss) per share is computed by dividing consolidated
net earnings, after deducting net preferred dividends on redeemable
preferred stock and Series One ESOP Convertible Preference Stock ("ESOP
Preference Stock"), by the weighted average number of common shares
outstanding during the period.
Fully diluted net earnings (loss) per share is computed based upon the
assumed conversion of the ESOP Preference Stock into common stock.
Consolidated net earnings utilized in the calculation is adjusted for the
difference between the current dividend on the ESOP Preference Stock and
the common stock, and for certain non-discretionary expenses based on net
earnings. The conversion of the ESOP Preference Stock and adjustments
described above are anti-dilutive and, therefore, fully diluted net
earnings (loss) per share has not been presented.
4. The components of net interest expense were as follows:
Second Quarter Ended Six Months Ended
--------------------- ---------------------
July 1, June 30, July 1, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
($ in thousands)
----------------
Interest expense $ 12,941 $ 5,704 $ 21,691 $ 10,029
Interest income (135) (160) (270) (337)
Capitalized interest (71) (139) (72) (191)
-------- -------- -------- --------
Interest expense, net $ 12,735 $ 5,405 $ 21,349 $ 9,501
======== ======== ======== ========
5. During the six months ended July 1, 1995 and June 30, 1994, the Company had
the following non-cash financing and investing activities:
($ in thousands) 1995 1994
---------------- ---- ----
Performance share and restricted stock awards $ 2,193 $ 1,558
======= =======
8
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the Second Quarter Ended July 1, 1995 and June 30, 1994
Consolidated net sales for the quarter ended July 1, 1995 were $2.77
billion, an increase of 10.5% over consolidated net sales of $2.51 billion for
the quarter ended June 30, 1994. Same store sales increased 1.7% over the prior
year's period compared to an increase of 1.9% in 1994.
Operating results for the quarter included the Palm and Easter Sunday
selling periods, which occurred in the second quarter of 1995 as compared to the
first quarter of 1994. In addition, the current year's accounting period had two
additional selling days than the prior year's quarter, which ended on June 30,
1994.
For the second quarter of 1995, the Company reported consolidated net
earnings of $31.1 million compared to consolidated net earnings of $45.6 million
for the second quarter of 1994. Consolidated net earnings per share was $0.25
for the current year period as compared to $0.39 per share last year.
For the quarter ended July 1, 1995, net sales for the prescription drugs,
health and beauty care segment increased 17.6% from the prior year period while
same store sales increased 11.1%, as compared to an increase of 4.0% in 1994.
Sales in both front store and pharmacy businesses were very strong, reflecting
strong seasonal events and increased average prescription sales. Gross margin as
a percentage of net sales for this segment declined for the quarter, reflecting
the impact of the proportionate increase in the lower margined pharmacy
business. This segment's share of consolidated net sales in the second quarter
of 1995 and 1994 was 43.4% and 40.8%, respectively.
Net sales for the apparel segment decreased 0.9% in the second quarter of
1995 compared to the prior year period. Same store sales decreased 11.6%
compared to an increase of 0.2% in 1994, reflecting the disappointing results at
Marshalls, which continued to be adversely affected by competition in the
apparel industry. Same store sales at Wilsons improved, however, due to
successful promotions and strong sales of its accessories line. Higher markdowns
taken in this segment as compared to last year, especially at Marshalls in
response to the sales shortfall, resulted in a decrease in gross margin as a
percentage of net sales. For the second quarter of 1995, this segment
represented 27.7% of consolidated net sales as compared to 30.9% in the same
period last year.
Net sales for the footwear segment increased by 7.8% for the quarter ended
July 1, 1995 compared to the same period in 1994. This segment, which was
favorably impacted by the timing of the Easter holiday, reported a 1.8% increase
in same store sales during the second quarter of 1995 as compared to a 0.7%
decrease for the comparable prior year period. Positive sales growth was
reported at Footaction due to the popularity of several new athletic shoe styles
and the growth of its superstores. Meldisco, however, experienced a decline in
same store sales caused by unseasonable weather and increased competition. Gross
margin as a percentage of net sales declined as a result of higher markdowns
recorded at all divisions in this segment. For the second quarter of 1995, this
segment represented 17.3% of consolidated net sales, compared to 17.7% for the
second quarter of 1994.
(Continued)
9
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales in the toys and home furnishings segment increased 20.7% in the
second quarter of 1995 as compared to the prior year period. Same store sales
increased 4.4% for the quarter compared to an increase of 2.8% in the second
quarter of last year. Sales growth in this segment occurred principally due to
strong video software and special value sales at Kay-Bee and continued expansion
at Linens 'n Things. Gross margin as a percentage of net sales declined from the
prior year due to aggressive pricing at Kay-Bee and a shift in sales mix
throughout the segment. This segment's net sales for the second quarter of 1995
represented 11.6% of the consolidated total as compared to 10.6% in 1994.
Cost of goods sold, buying and warehousing costs as a percentage of
consolidated net sales was 65.5% in the second quarter of 1995, compared to
64.0% in 1994. The increase resulted primarily from a change in sales mix toward
lower margined categories and higher markdowns, principally in the Company's
apparel and footwear businesses.
Store operating, selling, general and administrative expenses were 29.4% of
consolidated net sales for the second quarter of 1995 compared to 30.4% in the
prior year quarter. The decrease was due to stringent management of expenses and
increased sales, in part resulting from the shift in the holiday calendar, which
enabled the Company to leverage its fixed costs. Depreciation and amortization
expense as a percentage of consolidated net sales was 2.1% for the second
quarter of both 1995 and 1994.
Net interest expense totalled $12.7 million for the second quarter of 1995
as compared to $5.4 million in the second quarter of 1994. The increase in 1995
reflected significantly higher short-term borrowing rates, as well as increased
average short-term borrowings, resulting from higher stock levels maintained and
lower earnings.
Minority interests in net earnings for the second quarter of 1995 were 0.5%
of consolidated net sales versus 0.6% in the second quarter of 1994 and are
based on the profitability of the related operations.
The Company's effective tax rate for the quarter was 34.1%, compared to
27.5% in the second quarter of 1994. The higher effective tax rate in 1995 is
due to the relative mix of our businesses and the incomparability of earnings
between the two periods.
For the Six Months Ended July 1, 1995 and June 30, 1994
For the six month period ended July 1, 1995, which had one more selling day
than the corresponding period in 1994, consolidated net sales were $5.26
billion, an increase of 7.7% over consolidated net sales of $4.89 billion for
the six months ended June 30, 1994. Same store sales increased 1.1% over the
prior year's period compared to an increase of 3.5% in 1994.
For the first six months of 1995, the Company reported consolidated net
earnings of $4.6 million compared to consolidated net earnings of $43.1 million
for the 1994 period. On a per share basis, after deducting dividends on the ESOP
Preference Stock, the Company reported a consolidated net loss of $0.04 for the
current year versus net earnings per share of $0.33 for 1994.
For the six months ended July 1, 1995, net sales for the prescription
drugs, health and beauty care segment increased 13.5% over the prior year period
while same store sales increased 9.2%, as compared to an increase of 5.5% in
1994. Sales in 1995 reflected strong sales both in the pharmacy department and
in front store categories, which have benefitted from increased private label
offerings and enhanced inventory management. Gross margin as a percentage of net
sales for the segment declined due to an increase in the proportion of lower
margined prescription sales to total sales. This segment's share of consolidated
net sales in the first six months of 1995 and 1994 was 44.3% and 42.0%,
respectively.
(continued)
10
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the apparel segment decreased 1.0% in the first six months of
1995 compared to the prior year period. Same store sales decreased 9.4% compared
to an increase of 1.5% in 1994. Marshall's year to date performance reflects the
overall weakness in the off-price sector and the increased competition in the
apparel marketplace. Wilsons, however, experienced very positive results,
primarily in its accessories lines. Bob's sales increased due to the rapid
expansion of the chain. Gross margin for the segment as a percentage of net
sales decreased due to higher markdowns at all three businesses in the segment,
offset by increased initial markon at Wilsons, related to its accessories lines,
and lower buying and warehousing costs at Marshalls. For the first half of 1995,
this segment represented 27.6% of consolidated net sales as compared to 30.0% in
the same period last year.
The footwear segment experienced an increase in net sales of 2.6% for the
six months ended July 1, 1995 compared to the same period in 1994. This segment
reported a 1.7% decrease in same store sales during the first six months of 1995
as compared to a 1.0% increase for the comparable prior year period. Net sales
for the segment were driven by very favorable results at Footaction, which
reported strong sales growth in each of its departmental lines. Meldisco,
however, was impacted by the Kmart store closings and the expansion of its
competitors. Gross margin as a percentage of net sales was impacted by higher
markdowns at Meldisco and Thom McAn in response to sluggish sales, offset by
lower markdowns at Footaction. For the six month period of 1995, this segment
represented 16.1% of consolidated net sales, compared to 16.9% for the first six
months of 1994.
Net sales in the toys and home furnishings segment increased 16.6% in the
first six months of 1995 as compared to the prior year period. Same store sales
increased 2.5% for the first half of 1995 compared to an increase of 4.6% in the
first six months of last year. Segment results were positively impacted by sales
of video software and special value lines at Kay-Bee. Linens 'n Things continued
to yield strong sales growth from the increase in its superstore base and the
continued expansion of its product offerings. Gross margin as a percentage of
net sales declined from the prior year due to higher markdowns at Kay-Bee and
Linens 'n Things, as well as changes in product mix at all three divisions in
the segment. This segment's net sales for the first half of 1995 represented
12.0% of the consolidated total as compared to 11.1% in 1994.
Cost of goods sold, buying and warehousing costs as a percentage of
consolidated net sales was 66.6% in the first six months of 1995, compared to
65.1% in 1994. The increase resulted primarily from a change in sales mix toward
lower margined categories and higher markdowns, principally in the Company's
apparel and footwear businesses.
Store operating, selling, general and administrative expenses were 30.3% of
consolidated net sales for the first six months of 1995 compared to 30.8% in the
same period last year. The achievement of this favorable variance was due to
more stringent management of variable expenses and leveraging of fixed costs due
to the higher sales at many divisions.
Depreciation and amortization expense as a percentage of consolidated net
sales was 2.2% for the first six months of 1995 as compared to 2.1% in the 1994
period, reflecting the recent remodelings and expansions of our store formats,
as well as sales declines at certain footwear and apparel divisions.
Net interest expense totalled $21.3 million for the first six months of
1995 as compared to $9.5 million in the first six months of 1994. The increase
in 1995 reflected significantly higher short-term borrowing rates, as well as
increased average short-term borrowings, resulting from higher stock levels
maintained and lower earnings.
Minority interests in net earnings were 0.3% of consolidated net sales for
the first six months of 1995 versus 0.4% in the second quarter of 1994 and are
based on the profitability of the related operations.
The Company's effective tax rate for the six months was 16.0%, compared to
27.6% in the first six months of 1994. The lower effective tax rate in 1995 is
due to the relative mix of the Company's businesses and lower earnings.
(continued)
11
<PAGE>
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
Inherent in the seasonality of the specialty retailing business are
cyclical buildups of inventory prior to peak selling periods, the most
significant of which are Christmas, Palm and Easter Sundays, and Back-to-School.
Although the Company finances its growth in operations and working capital
requirements primarily through internally generated funds, short-term borrowings
are also used to finance these seasonal inventory buildups. The short-term
borrowings reach a peak in the Fall with the inventory buildup in anticipation
of the Christmas selling season.
For the six months ended July 1, 1995, cash and cash equivalents decreased
$34.4 million to $82.7 million as compared to a decrease of $10.1 million to
$70.9 million for the first six months of 1994. The Company had short-term
borrowings of $805.0 million outstanding at July 1, 1995 and $529.1 million at
June 30, 1994. The increase in the level of short-term borrowings in 1995 was
due primarily to the maintenance of higher inventories for new stores and an
expansion to larger store formats at several divisions, as well as lower
earnings, the timing of dividend payments and the repurchase of common stock
during the period.
Net accounts receivable decreased by $37.2 million to $192.6 million for
the six months ended July 1, 1995 as compared to a decrease of $26.2 million to
$217.8 million for the six months ended June 30, 1994. The lower accounts
receivable balance in 1995 reflected the improvement in verification of third
party receivables at CVS and more timely collection of other receivables, as
well as the timing of payments from licensors.
For the six months ended July 1, 1995, inventories increased $146.5 million
to $2.3 billion. For the six months ended June 30, 1994, inventories increased
$236.1 million to $2.1 billion. The larger inventory balance in 1995 is due to
increased purchases in response to the favorable sales trend at CVS, and the
higher stock levels required for the Company's larger store formats, as well as
lower LIFO reserves.
Prepaid expenses increased $4.8 million in the first six months of 1995 as
compared to a decrease of $9.7 million in 1994. The increase in 1995 is due
mostly to higher levels of prepaid interest related to increased commercial
paper borrowings. The decrease in 1994 was due primarily to decreased deferred
taxes related to the utilization of reserves established in connection with the
strategic realignment charge recorded in the fourth quarter of 1992.
The decrease in accounts payable and accrued expenses was $206.9 million
for the six months ended July 1, 1995, as compared to a decrease of $75.4
million in 1994. The larger decrease in 1995 was primarily due to the timing of
payments, particularly for dividends on ESOP Preference stock. The larger
balance in 1995 reflected a higher accounts payable balance due to increased
inventory levels, as well as higher accruals due to timing of payments.
Capital additions of $149.6 million and $155.8 million in the first six
months of 1995 and 1994, respectively, represented expenditures primarily for
improvements to new and existing leased store locations, store equipment,
information systems and distribution and office facilities.
12
<PAGE>
REVIEW BY INDEPENDENT AUDITORS
The July 1, 1995 and June 30, 1994 consolidated condensed financial statements
included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick
LLP, independent auditors, in accordance with established professional standards
and procedures for such a limited review.
The report of KPMG Peat Marwick LLP, commenting on their review, is included
herein as Part I - Exhibit 1.
13
<PAGE>
Part 1 - Exhibit 1
Independent Auditors' Review Report
The Board of Directors and Shareholders of
Melville Corporation:
We have reviewed the consolidated condensed balance sheets of Melville
Corporation and subsidiary companies as of July 1, 1995 and June 30, 1994, and
the related consolidated condensed statements of earnings for the second quarter
and six month periods ended July 1, 1995 and June 30, 1994 and the related
consolidated condensed statements of cash flows for the six month periods ended
July 1, 1995 and June 30, 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with general accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Melville Corporation and subsidiary
companies as of December 31, 1994 and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 16, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1994, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/S/KPMG Peat Marwick LLP
New York, New York
July 25, 1995
14
<PAGE>
Part II. - OTHER INFORMATION
Item 4 - Results of Votes of Security Holders
On April 11, 1995, the Company held its annual meeting of shareholders.
There was no solicitation in opposition to management's nominees for
directors as listed in the proxy statement and all such nominees were
elected. Of the 98,278,319 shares voted, at least 87,993,200 shares voted
for each of these directors.
The proposed amendments to the Company's Omnibus Stock Incentive Plan set
forth in the proxy statement were approved by the shareholders with
72,462,668 shares voting for such proposal, 24,139,110 voting against and
1,676,541 shares abstaining.
The shareholder proposal described in the proxy statement was defeated by
the shareholders with 45,575,681 shares voting against such proposal,
44,295,555 voting for, 4,512,804 shares abstaining and 3,894,279 broker
non-votes.
Item 6 - Exhibits and Reports on Form 8-K
a)
EXHIBIT INDEX
Exhibit
-------
11 Computation of Per Share Earnings
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedules
b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended July 1, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELVILLE CORPORATION
--------------------
(REGISTRANT)
/S/ GARY L. CRITTENDEN
-------------------------------
Gary L. Crittenden
Senior Vice President
and Chief Financial Officer
Date: August 11, 1995
15
Exhibit 11
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
($ and shares in thousands, except per share data)
Second Quarter Second Quarter
Ended Ended
July 1, 1995 June 30, 1994
------------ -------------
PRIMARY EARNINGS PER COMMON SHARE:
Net earnings $ 31,082 $ 45,602
Less: Preferred dividends, net 4,328 4,319
--------- ---------
Net earnings used to calculate
primary earnings per share $ 26,754 $ 41,283
========= =========
Weighted average number of shares outstanding 104,892 105,447
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 46 103
--------- ---------
Weighted average number of shares used to
compute primary earnings per share 104,938 105,550
========= =========
Primary earnings per share $ 0.25 $ 0.39
========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net earnings $ 31,082 $ 45,602
Less: Preferred dividends 13 13
--------- ---------
Net earnings used to calculate fully diluted
earnings per share, before adjustments 31,069 45,589
Less: Adjustments resulting principally from
the assumed conversion of the Series
One ESOP Convertible Preference Stock,
net of tax benefit 880 1,080
--------- ---------
Net earnings used to calculate fully diluted
earnings per share $ 30,189 $ 44,509
========= =========
Weighted average number of shares outstanding 104,892 105,447
Add: Weighted average shares of Series One
Convertible Preference Stock assuming
conversion 7,207 6,965
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 45 104
Add: Weighted average number of shares which
could have been issued upon conversion of
4 7/8% debentures 3 6
--------- ---------
Weighted average number of shares used to compute
fully diluted earnings per share 112,147 112,522
========= =========
Fully diluted earnings per share $ 0.27 $ 0.40
========= =========
<PAGE>
Exhibit 11
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
($ and shares in thousands, except per share data)
Six Months Six Months
Ended Ended
July 1, 1995 June 30, 1994
------------ -------------
PRIMARY (LOSS)/EARNINGS PER COMMON SHARE:
Net earnings $ 4,634 $ 43,097
Less: Preferred dividends, net 8,656 8,639
--------- ---------
Net (loss)/earnings used to calculate
primary (loss)/earnings per share ($ 4,022) $ 34,458
========= =========
Weighted average number of shares outstanding 105,083 105,404
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 26 100
--------- ---------
Weighted average number of shares used to
compute primary (loss)/earnings per share 105,109 105,504
========= =========
Primary (loss)/earnings per share ($ 0.04) $ 0.33
========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net earnings $ 4,634 $ 43,097
Less: Preferred dividends 27 27
--------- ---------
Net earnings used to calculate fully diluted
earnings per share, before adjustments 4,607 43,070
Less: Adjustments resulting principally from
the assumed conversion of the Series
One ESOP Convertible Preference Stock,
net of tax benefit 2,455 2,739
--------- ---------
Net earnings used to calculate fully diluted
earnings per share $ 2,152 $ 40,331
========= =========
Weighted average number of shares outstanding 105,083 105,404
Add: Weighted average shares of Series One
Convertible Preference Stock assuming
conversion 7,208 6,965
Add: Weighted average number of shares which
could have been issued upon exercise
of outstanding options 27 103
Add: Weighted average number of shares which
could have been issued upon conversion of
4 7/8% debentures 3 6
--------- ---------
Weighted average number of shares used to compute
fully diluted earnings per share 112,321 112,478
========= =========
Fully diluted earnings per share $ 0.02 $ 0.36
========= =========
Exhibit 15
Melville Corporation
Rye, New York
Board of Directors:
Re: Registration Statements Numbers 33-40251, 33-17181 and 2-97913 on Form S-8
and Number 33-34946 on Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 25, 1995 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/S/KPMG Peat Marwick LLP
New York, New York
August 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 82,664
<SECURITIES> 0
<RECEIVABLES> 206,536
<ALLOWANCES> 13,914
<INVENTORY> 2,284,788
<CURRENT-ASSETS> 2,730,290
<PP&E> 2,331,499
<DEPRECIATION> 765,505
<TOTAL-ASSETS> 4,851,450
<CURRENT-LIABILITIES> 1,929,914
<BONDS> 331,229
<COMMON> 111,545
1,330
0
<OTHER-SE> 2,178,330
<TOTAL-LIABILITY-AND-EQUITY> 4,851,450
<SALES> 5,262,208
<TOTAL-REVENUES> 5,262,208
<CGS> 3,503,093
<TOTAL-COSTS> 3,503,093
<OTHER-EXPENSES> 1,712,858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,349
<INCOME-PRETAX> 24,908
<INCOME-TAX> 3,974
<INCOME-CONTINUING> 4,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,634
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
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