<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 29, 1996
Commission File Number 1-1011
MELVILLE CORPORATION
(Exact Name of registrant as specified in its charter)
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NEW YORK 04-1611460
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
One CVS Drive, Woonsocket, Rhode Island 02865
(401) 765-1500
(Address and telephone number of principal executive offices)
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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
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Common Stock, $1 par value outstanding at July 27,1996 - 105,716,194 shares
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<PAGE> 2
INDEX
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PART I. - FINANCIAL INFORMATION:
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Page
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Consolidated Condensed Statements of Operations -
Three and Six Month Periods Ended
June 29, 1996 and July 1, 1995 3
Consolidated Condensed Balance Sheets -
As of June 29, 1996, December 31, 1995 and
July 1, 1995 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 29, 1996 and July 1, 1995 6
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Review by Independent Auditors 13
Exhibit I - Report of Review by Independent Auditors 14
PART II. - OTHER INFORMATION: 15
- -----------------------------
2
<PAGE> 3
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
Consolidated Condensed Statements of Operations
(unaudited)
(Dollars and shares in thousands except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $1,363,507 $1,202,865 $2,621,941 $2,331,030
Cost of goods sold, buying, and warehousing costs 974,991 860,127 1,871,442 1,665,927
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Gross margin 388,516 342,738 750,499 665,103
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Selling, general and administrative expenses 284,467 255,909 555,327 504,414
Depreciation and amortization 19,806 17,866 39,575 36,182
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Total operating expenses 304,273 273,775 594,902 540,596
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Operating profit 84,243 68,963 155,597 124,507
Gain on sale of securities 76,625 - 76,625 -
Dividend income 2,709 - 5,443 -
Interest expense, net (11,981) (12,478) (17,505) (20,645)
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense), net 67,353 (12,478) 64,563 (20,645)
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Earnings from continuing operations before income
taxes and cumulative effect of change in
accounting principle 151,596 56,485 220,160 103,862
Income tax provision 60,664 23,158 88,727 42,582
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Earnings from continuing operations before cumulative
effect of change in accounting principle 90,932 33,327 131,433 61,280
Discontinued operations:
Loss from operations, net of income tax benefits
(provisions) of $13,461, $(32), $31,047 and
$38,870 for the three and six month periods ended
June 29, 1996 and July 1, 1995, respectively (28,821) (2,662) (54,823) (80,607)
Estimated loss on disposal, net of income tax benefits
of $69,857 and $70,484 for the three and six month
periods ended June 29, 1996, respectively (124,645) - (124,942) -
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Loss from discontinued operations (153,466) (2,662) (179,765) (80,607)
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(Loss) earnings before cumulative effect of change in
accounting principle (62,534) 30,665 (48,332) (19,327)
Cumulative effect of change in accounting
principle, net - - - 22,315
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Net (loss) earnings $ (62,534) $ 30,665 $ (48,332) $ (41,642)
====================================================================================================================================
Per common share:
Earnings from continuing operations before
cumulative effect of change in accounting principle $ 0.83 $ 0.28 $ 1.18 $ 0.50
Loss from discontinued operations (1.45) (0.03) (1.70) (0.77)
(Loss) earnings before cumulative effect of change
in accounting principle (0.62) 0.25 (0.52) (0.27)
Cumulative effect of change in accounting
principle, net - - - (0.21)
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Net (loss) earnings (0.62) 0.25 (0.52) (0.48)
====================================================================================================================================
Weighted average common shares outstanding 105,697 104,938 105,352 105,109
====================================================================================================================================
Dividends per common share $ 0.11 $ 0.38 $ 0.22 $ 0.76
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
Consolidated Condensed Balance Sheets
(Dollars and shares in thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, December 31, July 1,
1996 1995 1995
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Cash and cash equivalents $ 82,255 $ 129,583 $ 82,664
Investments 101,805 175,000 -
Accounts receivable, less allowance for doubtful accounts of $27,674,
$33,438 and $13,914 at June 29, 1996,
December 31, 1995 and July 1, 1995, respectively 189,879 296,393 219,574
Inventories:
Finished goods 1,434,344 1,661,677 2,267,228
Work-in-process - 767 2,267
Raw materials and supplies - 10,513 15,293
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Total inventories 1,434,344 1,672,957 2,284,788
Prepaid expenses 285,616 285,995 170,216
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Total current assets 2,093,899 2,559,928 2,757,242
Property and equipment, less accumulated depreciation and amortization of
$449,575, $593,523 and $760,161 at June 29, 1996,
December 31, 1995 and July 1, 1995, respectively 891,879 1,114,404 1,495,155
Deferred charges and other assets 243,595 91,612 116,795
Goodwill, net of accumulated amortization of $28,660,
$28,152 and $102,177 at June 29, 1996, December 31, 1995
and July 1, 1995, respectively 174,524 195,618 441,744
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Total assets $3,403,897 $3,961,562 $4,810,936
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
Consolidated Condensed Balance Sheets
(Dollars and shares in thousands except per share amounts)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
June 29, December 31, July 1,
1996 1995 1995
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities:
Accounts payable $ 467,823 $ 690,651 $ 672,953
Accrued expenses 808,553 1,039,825 444,306
Notes payable 91,900 52,000 805,000
Other current liabilities 14,774 15,212 13,657
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Total current liabilities 1,383,050 1,797,688 1,935,916
Long-term debt 321,435 327,698 331,229
Deferred income taxes 12,077 9,103 86,564
Other long-term liabilities 134,296 184,150 138,651
Minority interests in subsidiaries 41,719 93,830 73,648
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 shares held in treasury at June 29, 1996,
December 31, 1995 and July 1, 1995 1,330 1,330 1,330
Shareholders' equity:
Preference stock, par value $1.00, authorized 50,000 shares; Series One
ESOP convertible, liquidation value $53.45; 5,923, 6,267 and 6,320
shares issued and outstanding at June 29, 1996, December 31, 1995
and July 1, 1995, respectively 316,591 334,947 337,828
Guaranteed ESOP obligation (309,675) (309,675) (321,096)
Common stock, par value $1.00, authorized 300,000 shares, issued 111,877,
111,649 and 111,545 shares at June 29, 1996, December 31, 1995 and
July 1, 1995, respectively; outstanding 105,677, 105,106 and 104,948
shares at June 29, 1996, December 31, 1995 and
July 1, 1995, respectively, net of shares held in treasury 111,877 111,649 111,545
Capital surplus 64,168 54,878 51,382
Retained earnings 1,588,878 1,660,409 2,372,832
Unrealized gain on investments, net of tax 25,829 - -
Cumulative translation adjustment 78 146 (1,661)
Common stock in treasury, at cost, 6,200, 6,543 and 6,597 shares at
June 29, 1996, December 31, 1995 and July 1, 1995, respectively (287,756) (304,591) (307,232)
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Total shareholders' equity 1,509,990 1,547,763 2,243,598
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Total liabilities and shareholders' equity $3,403,897 $3,961,562 $4,810,936
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
Consolidated Condensed Statements of Cash Flows
(unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
- -------------------------------------------------------------------------------------------------------------------------
June 29, July 1,
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash used in operating activities $ (81,368) $(244,324)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant, equipment and leasehold improvements (111,441) (141,641)
Proceeds from sale or disposal of property and equipment and
operations or assets sold 201,303 11,403
Proceeds from sale of investments 191,625 -
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 281,487 (130,238)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in notes payable 39,900 605,000
Decrease in book overdrafts (207,202) (99,168)
Dividends paid (87,061) (131,295)
Repurchase of common stock - (26,309)
Proceeds from stock issuance 6,589 671
Increase (decrease) in long-term debt and obligations under capital leases 394 (8,666)
Effect of currency fluctuations (67) (42)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (247,447) 340,191
- -------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and equivalents (47,328) (34,371)
Cash and cash equivalents at the beginning of year 129,583 117,035
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 82,255 $ 82,664
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Notes to consolidated condensed financial statements
(unaudited)
NOTE 1
The financial statements should be read in conjunction with the financial
statements included in Melville Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995. The accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of Melville's financial position at June 29, 1996 and July 1,
1995 and its results of operations for each of the respective three and six
month periods ended June 29, 1996 and July 1, 1995 and cash flows for each of
the six month periods ended June 29, 1996 and July 1, 1995. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The results of operations for
the six months ended June 29, 1996 are not necessarily indicative of the results
for the full year. Certain reclassifications have been made to the consolidated
condensed financial statements of prior periods to conform to the current period
presentation.
NOTE 2
Since October 1995, Melville has been implementing a strategic restructuring
program, which was the product of a strategic review initiated in 1994. The main
components of the restructuring include the creation of two publicly-traded,
independent and industry-focused companies -- CVS Corporation in the chain drug
industry and Footstar, Inc. in the footwear industry -- a significant reduction
in costs, the sale of Melville's unrelated businesses, and the closing of
approximately 330 underperforming stores. As part of this program, the Company:
[arrow] completed the sale of its Marshalls division to The TJX Companies, Inc.
("TJX") on November 17, 1995 for total proceeds of approximately $600
million, including $175 million of TJX preferred stock.
[arrow] completed the sale of its Kay-Bee Toys division on May 4, 1996 to
Consolidated Stores Corporation for total proceeds of approximately
$315 million (subject to final purchase price adjustments), including
cash and a note receivable.
[arrow] completed the sale of its Wilsons division on May 25, 1996 to an
investor group led by Wilsons' management and the sale of its This End
Up division on May 31, 1996 to an investor group for total combined
proceeds of approximately $87 million (subject to final purchase price
adjustments), including cash, stock warrants and notes receivable.
During the second quarter of 1996, Melville announced several steps to
accelerate the emergence of CVS as a stand-alone chain drug company and to
further strengthen Footstar, Inc. The actions included (1) a formal plan to
separate the Linens `n Things and Bob's divisions from CVS and (2) a formal plan
to convert 80 to 100 Thom McAn stores to the Footaction store format and to
exit the Thom McAn business by mid-1997. Primarily in connection with these
actions, the Company recorded a one-time, after tax restructuring charge of
approximately $148 million in discontinued operations.
The results of operations for the footwear segment (which includes the Meldisco,
Footaction and Thom McAn divisions), the apparel segment (which includes the
Marshalls, Wilsons and Bob's divisions) and the toys and home furnishings
segment (which includes Kay-Bee Toys, This End Up and Linens `n Things) have
been classified as discontinued operations in the accompanying consolidated
condensed statements of operations. Melville's results from continuing
operations, therefore, represent solely those of the CVS division.
7
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MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Notes to consolidated condensed financial statements
(unaudited)
NOTE 3
Discontinued operations accounted for approximately 36% of total assets and
approximately 29% of total liabilities at June 29, 1996. Net sales from
discontinued operations totaled $849.3 million and $1.6 billion for the three
month periods ended June 29, 1996 and July 1, 1995 and $1.7 billion and $2.9
billion for the six month periods ended June 29, 1996 and July 1, 1995,
respectively.
NOTE 4
Primary earnings (loss) per share is computed by dividing net earnings (loss),
after deducting net preferred dividends on redeemable preferred stock and Series
One ESOP Convertible Preference Stock ("ESOP Preference Stock"), by the weighted
average number of common shares outstanding during the period.
Fully diluted earnings (loss) per share is computed based upon the assumed
conversion of the ESOP Preference Stock into common stock. Net earnings (loss)
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 the adjustments described above are anti-dilutive and,
therefore, fully diluted earnings (loss) per share has not been presented.
NOTE 5
<TABLE>
The components of net interest expense are as follows (dollars in thousands):
<CAPTION>
Three Months Ended Six Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $12,055 $12,578 $18,944 $20,769
Interest income (74) (100) (1,439) (124)
- --------------------------------------------------------------------------------------------------------------------
Interest expense, net $11,981 $12,478 $17,505 $20,645
====================================================================================================================
</TABLE>
NOTE 6
<TABLE>
The Company had the following non-cash financing and investing activities (dollars in thousands):
<CAPTION>
Six Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 29, 1996 July 1, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes received for operations sold $158,811 $ -
Unrealized gain on investments 41,805 -
</TABLE>
NOTE 7
On June 28, 1996, the Company sold 1.15 million shares of the TJX Series E
preferred stock received as a portion of the proceeds from the sale of the
Marshalls division for $191.6 million, resulting in a pre-tax gain of
approximately $76.6 million. An additional 350,000 shares of the TJX Series E
preferred stock was sold on July 3, 1996 for $60.5 million, resulting in a
pre-tax gain of approximately $25.0 million which will be recognized in the
third quarter. The Company continues to hold 250,000 shares of TJX Series D
preferred stock.
8
<PAGE> 9
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Management's Discussion And Analysis of Financial Condition And Results of
Operations
RESULTS OF OPERATIONS
- ---------------------
Since October 1995, Melville has been implementing a strategic restructuring
program, which was the product of a strategic review initiated in 1994. The main
components of the restructuring include the creation of two publicly-traded,
independent and industry-focused companies -- CVS Corporation in the chain drug
industry and Footstar, Inc. in the footwear industry -- a significant reduction
in costs, the sale of Melville's unrelated businesses, and the closing of
approximately 330 underperforming stores. Through June 29, 1996, the Company
completed the disposition of its Marshalls, Kay-Bee Toys, Wilsons and This End
Up divisions (collectively referred to as the "Dispositions") as part of this
program.
During the second quarter of 1996, Melville announced several steps to
accelerate the emergence of CVS as a stand-alone chain drug company and to
further strengthen Footstar, Inc. The actions included (1) a formal plan to
separate the Linens `n Things and Bob's divisions from CVS and (2) a formal plan
to convert 80 to 100 Thom McAn stores to the Footaction store format and to
exit the Thom McAn business by mid-1997. Primarily in connection with these
actions, the Company recorded a one-time, after tax restructuring charge of
approximately $148 million in discontinued operations.
The results of operations for the footwear segment (which includes the Meldisco,
Footaction and Thom McAn divisions), the apparel segment (which includes the
Marshalls, Wilsons and Bob's divisions) and the toys and home furnishings
segment (which includes Kay-Bee Toys, This End Up and Linens `n Things) have
been classified as discontinued operations in the accompanying consolidated
condensed statements of operations. Melville's results from continuing
operations, therefore, represent solely those of the CVS division.
Second Quarter
- --------------
Net sales from continuing operations for the second quarter of 1996 increased
13.4% to $1.36 billion from sales of $1.20 billion for the comparable period
last year due to strong performance in both the front store and pharmacy. Same
store sales for the quarter rose 9.8%. The sales results for the second quarter
of 1996 were negatively impacted by a shift in the Palm and Easter Sunday and
Independence Day selling seasons as compared to 1995.
Cost of goods sold, buying and warehousing costs from continuing operations as a
percentage of net sales was 71.5% in the second quarter of 1996 and 1995.
Selling, general and administrative expenses from continuing operations as a
percentage of net sales were 20.9% for the second quarter of 1996, compared to
21.3% in 1995. The 40 basis point improvement from 1995 is primarily due to
controlling fixed costs and to the cost reductions resulting from the strategic
restructuring program.
Depreciation and amortization expense from continuing operations as a percentage
of consolidated net sales was 1.5% for the second quarter of 1996 and 1995.
Operating profit from continuing operations for the second quarter was $84.2
million, an increase of 22.2% from $69.0 million in the comparable period last
year. Operating profit as a percentage of net sales was 6.2% for the second
quarter, compared to 5.7% in 1995. The 50 basis point improvement from 1995 is
primarily due to: 1) maintaining consistent gross margin percentages, 2)
controlling selling, general and administrative expenses, and 3) reducing
corporate administrative expenses primarily as a result of the strategic
restructuring program.
During the second quarter of 1996, the Company sold 1.15 million shares of TJX
Series E preferred stock received as a portion of the proceeds from the sale of
the Marshalls division (the "Initial TJX Preferred Sale") for approximately
$191.6 million, resulting in a pre-tax gain of approximately $76.6 million.
9
<PAGE> 10
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Management's Discussion And Analysis of Financial Condition And Results of
Operations
During the second quarter of 1996, the Company recognized dividend income of
approximately $2.7 million on the TJX preferred stock. Since the Company sold a
significant portion the TJX Series E securities during the second quarter and
the remaining TJX Series E securities in the third quarter of 1996, the related
dividend income will not continue.
Interest expense totaled $12.1 million in the second quarter of 1996, compared
to $12.6 million in 1995. Although the Company's borrowing levels were
significantly reduced as a result of the Dispositions, the financial benefit for
the quarter was offset by timing differences related to the recognition of
interest expense on the Company's ESOP.
The Company's effective income tax rate for the quarter was 40%, compared to 41%
in 1995.
Consolidated net earnings from continuing operations for the quarter increased
35.1% to $45.0 million, or $.40 per share, excluding the $.43 per share gain
from the Initial TJX Preferred Sale, compared to $33.3 million, or $.28 per
share in 1995.
The Company's total consolidated net loss, including continuing and discontinued
operations, as well as the gain from the Initial TJX Preferred Sale and the
restructuring charge was $62.5 million, or $.62 per share, compared to net
earnings of $30.7 million, or $.25 per share in 1995.
Six Months
- ----------
Net sales from continuing operations for the first six months of 1996 rose 12.5%
to $2.62 billion from sales of $2.33 billion for the first half of last year due
to strong results in both the front store and pharmacy. Same store sales for the
six-month period increased 10.0%. The sales results for the six months of 1996
were negatively impacted by a shift in the Independence Day selling season as
compared to 1995.
Cost of goods sold, buying and warehousing costs from continuing operations as a
percentage of net sales was 71.4% in the first six months of 1996, compared to
71.5% in 1995. The 10 basis point improvement from 1995 is primarily due to
improved front store gross margin performance, partially offset by a planned
decrease in pharmacy gross margin.
Selling, general and administrative expenses from continuing operations were
21.2% of net sales for the first six months of 1996, compared to 21.6% in 1995.
The 40 basis point improvement from 1995 is primarily due to controlling fixed
costs and to the cost reductions resulting from the strategic restructuring
program.
Depreciation and amortization expense from continuing operations as a percentage
of consolidated net sales was 1.5% for the first six months of 1996 and 1995.
Operating profit from continuing operations was $155.6 million, an increase of
25.0% from $124.5 million for the comparable period in 1995. Operating profit as
a percentage of net sales was 5.9% for the first six months, compared to 5.3% in
1995. The 60 basis point improvement from 1995 is primarily due to: 1) improved
gross margin, 2) controlling selling, general and administrative expenses, and
3) reducing corporate administrative expenses primarily as a result of the
strategic restructuring program.
During the first six months of 1996, the Company completed the Initial TJX
Preferred Sale for approximately $191.6 million, resulting in a pre-tax gain of
approximately $76.6 million.
During the first six months of 1996, the Company recognized dividend income of
$5.4 million on the TJX preferred stock. Since the Company sold a significant
portion the TJX Series E securities during the second quarter and the remaining
TJX Series E securities in the third quarter of 1996, the related dividend
income will not continue.
10
<PAGE> 11
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Management's Discussion And Analysis of Financial Condition And Results of
Operations
Interest expense totaled $18.9 million during the first six months of 1996,
compared to $20.8 million in 1995. Although the Company's borrowing levels were
significantly reduced as a result of the Dispositions, the financial benefit for
the first six months was offset by timing differences related to the recognition
of interest expense on the Company's ESOP.
The Company's effective income tax rate for the first six months of 1996 was
40.3%, compared to 41% in 1995.
Consolidated net earnings from continuing operations for the first six months of
1996 increased 39.8% to $85.7 million, or $.75 per share, excluding the $.43 per
share gain from the Initial TJX Preferred Sale, compared to $61.3 million, or
$.50 per share in 1995.
The Company's total consolidated net loss, including continuing and discontinued
operations as well as the gain from the Initial TJX Preferred Sale, the
restructuring charge and the cumulative effect of the change in accounting
principle was $48.3 million, or $.52 per share, compared to a net loss of $41.6
million, or $.48 per share in 1995.
As of June 29, 1996, operating results from continuing operations included 1,375
CVS stores, compared to 1,339 stores at July 1, 1995. The Company is also
operating, as part of discontinued operations, 3,267 stores and leased
departments associated with the footwear segment and 35 Bob's and 154 Linens `n
Things locations.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Inherent in the seasonality of retailing are cyclical buildups of inventory
prior to peak selling periods, the most significant of which include 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 used to finance these
seasonal inventory buildups. Short-term borrowing levels historically peak in
the Fall due to the inventory buildup for the Christmas selling season.
For the six months ended June 29, 1996, cash and cash equivalents decreased
$47.3 million to $82.3 million, compared to a decrease of $34.4 million during
the first six months of 1995. The Company's short-term borrowings totaled $91.9
million at June 29, 1996, compared to $805.0 million at July 1, 1995. For the
six months ended June 29, 1996, short-term borrowings increased $39.9 million,
compared to an increase of $605.0 million during the first six months of 1995.
The decrease in short-term borrowing requirements in 1996 is primarily due to
the selling of the Marshalls, Kay-Bee Toys, Wilsons and This End Up divisions
(collectively referred to as the "Dispositions"), as well as to improved asset
management and improved earnings from continuing operations.
Net accounts receivable decreased $106.5 million to $189.9 million during the
six months ended June 29, 1996, compared to a decrease of $10.3 million for the
first six months of 1995. The decrease in net accounts receivable balances in
1996 is primarily due to the Dispositions.
Investments decreased $73.2 million to $101.8 during the six months ended June
29, 1996 primarily due to the sale of 1.15 million shares of TJX Series E
preferred stock received as a portion of the proceeds from the sale of the
Marshalls division, offset partially by an increase in the unrealized gain on
the remaining TJX preferred stock held by the Company at June 29, 1996.
For the six months ended June 29, 1996, inventories decreased $238.6 million to
$1.4 billion, compared to an increase of $146.5 million during the first six
months of 1995. The lower inventory level in 1996 is primarily due to the
Dispositions and to improved inventory turns, offset partially by the planned
increases in inventory relating to new store growth and Back-to-School
merchandise.
11
<PAGE> 12
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Management's Discussion And Analysis of Financial Condition And Results of
Operations
Deferred charges and other assets increased $152.0 million to $243.6 million
during the six months ended June 29, 1996, compared to an increase of $7.2
million during the first six months of 1995. The increase in deferred charges
and other assets in 1996 is primarily due to an increase in notes receivable
resulting from the Dispositions.
Accounts payable decreased by $222.8 million to $467.8 million during the six
months ended June 29, 1996, compared to a $12.3 million increase during the
first six months of 1995. The decrease in accounts payable in 1996 is primarily
due to lower inventory levels resulting from the Dispositions and to a decrease
in book overdrafts which was also impacted by the Dispositions.
Accrued expenses decreased by $231.3 million during the six months ended June
29, 1996, compared to a decrease of $215.2 million in 1995. The decrease in 1996
was primarily due to the Dispositions and to the utilization of accruals
primarily related to closed store lease settlements, outsourcing costs and
severance costs resulting from the Company's strategic restructuring program,
offset partially by the restructuring reserve recorded in the second quarter of
1996.
Capital additions of $111.4 million and $141.6 million in the first six months
of 1996 and 1995, respectively, represented expenditures primarily for
improvements to new and existing leased store locations, store equipment,
information systems and distribution and office facilities. The lower capital
expenditure level in 1996 is primarily due to the Dispositions.
12
<PAGE> 13
REVIEW BY INDEPENDENT AUDITORS
The June 29, 1996 and July 1, 1995 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> 14
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 June 29, 1996 and July 1, 1995, and
the related consolidated condensed statements of operations for the three and
six month periods then ended and cash flows for the six months then ended. 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 generally 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, 1995 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 15, 1996, 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, 1995, 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
Boston, Massachusetts
July 22, 1996
14
<PAGE> 15
Part II. - OTHER INFORMATION
Item 4 - Results of Votes of Security Holders
- ---------------------------------------------
On April 9, 1996, 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 95,337,153 shares voted, at least 84,279,506 shares
voted were for each of these directors.
The proposal to adopt the 1996 Directors Stock Plan as described in the
proxy statement was approved by the shareholders with 92,315,520 shares
voting for the proposal, 2,485,820 shares voting against the proposal
and 535,813 shares abstaining.
The proposal set forth in the proxy statement to appoint KPMG Peat
Marwick LLP as the Company's independent auditor for the fiscal year
ending December 31, 1996 was approved by the shareholders with
94,706,255 shares voting for the proposal, 368,894 shares voting
against the proposal, and 262,004 share abstaining.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
a) Exhibits:
11 Computation of Per Share Earnings
15 Letter re: Unaudited Interim Financial Information
27 Financial Data Schedule - June 29, 1996
27.1 Restated Financial Data Schedule - March 30, 1996
27.2 Restated Financial Data Schedule - December 31, 1995
27.3 Restated Financial Data Schedule - September 30, 1995
27.4 Restated Financial Data Schedule - July 1, 1995
27.5 Restated Financial Data Schedule - April 1, 1995
27.6 Restated Financial Data Schedule - December 31, 1994
27.7 Restated Financial Data Schedule - October 1, 1994
b) Reports on Form 8-K:
During the three months ended June 29, 1996, the Registrant
filed a current report on Form 8-K dated May 5, 1996 in
connection with the sale of its Kay-Bee Toys division to
Consolidated Stores Corporation.
15
<PAGE> 16
Part II. - OTHER INFORMATION
(continued)
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/ Charles C. Conaway
----------------------------------------------------
CHARLES C. CONAWAY
Executive Vice President and Chief Financial Officer
Date: August 8, 1996
16
<PAGE> 1
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES Exhibit 11
<TABLE>
Computation of Earnings Per Share
(Dollars and shares in thousands except per share amounts)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary (loss) earnings per common share:
Net (loss) earnings $(62,534) $ 30,665 $(48,332) $(41,642)
Less: preferred dividends, net (3,398) (4,328) (6,797) (8,656)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings used to compute
primary (loss) earnings per share $(65,932) $ 26,337 $(55,129) $(50,298)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 105,455 104,892 105,321 105,083
Add: weighted average number of
shares which could have been
issued upon exercise of
outstanding stock options 242 46 31 26
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
used to compute primary (loss)
earnings per share 105,697 104,938 105,352 105,109
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Primary (loss) earnings per share $ (.62) $ .25 $ (.52) $ (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Fully diluted (loss) earnings per common share:
Net (loss) earnings $(62,534) $ 30,665 $(48,332) $(41,642)
Less: preferred dividends, net (341) (631) (683) (1,261)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings used to compute
fully diluted (loss) earnings per
share before adjustments (62,875) 30,034 (49,015) (42,903)
Less: adjustments resulting principally
from the assumed conversion of
the Series One ESOP Convertible
Preference stock, net of tax benefit (1,659) (262) (4,212) (1,221)
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) earnings used to compute
fully diluted (loss) earnings per share $(64,534) $ 29,772 $(53,227) $(44,124)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 105,455 104,892 105,321 105,083
Add: weighted average number of
shares of Series One ESOP
Convertible Preference Stock
assuming conversion 7,032 7,208 7,032 7,208
Add: weighted average number of
shares which could have been
issued upon exercise of
outstanding stock options 332 45 334 28
Add: weighted average number of
shares which could have been
issued upon conversion of 4 7/8%
debentures -- 3 -- 3
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
used to compute fully diluted
(loss) earnings per share 112,819 112,148 112,687 112,322
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Fully diluted (loss) earnings per share $ (.57) $ .27 $ (.47) $ (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
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 22, 1996 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
Boston, Massachusetts
July 22, 1996
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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1,330
0
<OTHER-SE> 1,398,113
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<INCOME-TAX> 88,727
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<DISCONTINUED> (179,765)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 90,009
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1,330
0
<OTHER-SE> 1,460,048
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<INCOME-CONTINUING> 40,501
<DISCONTINUED> (26,299)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<S> <C>
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<CURRENT-LIABILITIES> 1,797,688
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<COMMON> 111,649
1,330
0
<OTHER-SE> 1,436,114
<TOTAL-LIABILITY-AND-EQUITY> 3,961,562
<SALES> 4,865,025
<TOTAL-REVENUES> 4,865,025
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<OTHER-EXPENSES> 1,312,157
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<INCOME-PRETAX> (7,160)
<INCOME-TAX> (2,936)
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<DISCONTINUED> (630,567)
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<CHANGES> 22,315
<NET-INCOME> (657,106)
<EPS-PRIMARY> (6.41)
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
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<SECURITIES> 0
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<DEPRECIATION> 809,122
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<CURRENT-LIABILITIES> 2,368,738
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1,330
0
<OTHER-SE> 2,089,375
<TOTAL-LIABILITY-AND-EQUITY> 5,207,053
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<TOTAL-REVENUES> 3,501,032
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<OTHER-EXPENSES> 840,476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,233
<INCOME-PRETAX> 117,848
<INCOME-TAX> 43,711
<INCOME-CONTINUING> 74,137
<DISCONTINUED> (98,570)
<EXTRAORDINARY> 0
<CHANGES> 22,315
<NET-INCOME> (46,748)
<EPS-PRIMARY> (0.57)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
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1,330
0
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<DISCONTINUED> (80,607)
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<CHANGES> 22,315
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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1,330
0
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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</TABLE>
