-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iXZTqt+yHVw78HO6cnStWv1Wmur+6YwCtmmW+9pCHiud+MQm4FUZchA+Pq/RFbLU 89cFTC8QDZjO0kUBSNfhFA== 0000891092-94-000041.txt : 19940815 0000891092-94-000041.hdr.sgml : 19940815 ACCESSION NUMBER: 0000891092-94-000041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELVILLE CORP CENTRAL INDEX KEY: 0000064803 STANDARD INDUSTRIAL CLASSIFICATION: 5600 IRS NUMBER: 041611460 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01011 FILM NUMBER: 94543501 BUSINESS ADDRESS: STREET 1: ONE THEALL ROAD CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149254000 MAIL ADDRESS: STREET 1: ONE THEALL ROAD CITY: RYE STATE: NY ZIP: 10580 FORMER COMPANY: FORMER CONFORMED NAME: MELVILLE SHOE CORP DATE OF NAME CHANGE: 19760630 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 30, 1994 Commission File Number 1-1011 MELVILLE CORPORATION - ------------------------------------------------------------------------------- (Exact Name of registrant as specified in its charter) NEW YORK 04-1611460 (State or other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) One Theall Road, Rye, New York 10580 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (914) 925-4000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ----- Number of shares outstanding of the issuer's Common Stock: Class Outstanding at July 30, 1994 ----- ---------------------------- Common Stock, $1 par value 105,515,910 INDEX Part I. - Financial Information Page No. -------- Consolidated Condensed Statements of Earnings - Second Quarter and Six Months Ended June 30, 1994 and 1993 3 Consolidated Condensed Balance Sheets - As of June 30, 1994, December 31, 1993 and June 30, 1993 4 - 6 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 1994 and 1993 7 Notes to Consolidated Condensed Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 Review by Independent Auditors 13 Exhibit I - - Report of Review by Independent Auditors 14 Part II. - Other Information 15 2 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) ($ and shares in thousands, except per share data) Second Quarter Ended June 30, Six Months Ended June 30, ----------------------------- ------------------------- 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Net sales $2,507,469 $2,537,395 $4,887,309 $4,570,406 Cost of goods sold, buying and warehousing costs 1,605,241 1,610,560 3,186,572 2,948,822 ---------- ---------- ---------- ---------- 902,228 926,835 1,700,737 1,621,584 ---------- ---------- ---------- ---------- Store operating, selling, general and administrative expenses 761,057 731,043 1,501,387 1,406,194 Depreciation and amortization 52,159 49,559 103,494 98,850 ---------- ---------- ---------- ---------- 813,216 780,602 1,604,881 1,505,044 ---------- ---------- ---------- ---------- Operating profit 89,012 146,233 95,856 116,540 Interest expense, net 5,405 3,934 9,501 7,113 ---------- ---------- ---------- ---------- Earnings before income taxes and minority interests 83,607 142,299 86,355 109,427 Provision for income taxes 22,975 52,154 23,873 39,518 ---------- ---------- ---------- ---------- Earnings before minority interests 60,632 90,145 62,482 69,909 Minority interests in net earnings 15,030 15,620 19,385 17,070 ---------- ---------- ---------- ---------- Net earnings $45,602 $ 74,525 $ 43,097 $ 52,839 ========== ========== ========== ========== Net earnings per share of common stock $0.39 $ 0.67 $ 0.33 $ 0.43 ========== ========== ========== ========== Dividends per share of common stock $0.38 $ 0.38 $ 0.76 $ 0.76 ========== ========== ========== ========== Weighted average common shares outstanding 105,447 104,994 105,404 104,888 ========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements. 3 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of June 30, 1994, December 31, 1993 and June 30, 1993 ($ in thousands) June 30, December 31, June 30, 1994 1993 1993 (Unaudited) (Unaudited) ----------- ------------ ----------- ASSETS Current Assets: Cash and cash equivalents $ 70,852 $ 80,971 $ 74,729 Accounts receivable (net of allowance for doubtful accounts of $22,917 at June 30, 1994, $32,534 at December 31, 1993 and $23,162 at June 30, 1993) 217,819 243,998 248,088 Inventories Finished goods 2,083,544 1,849,651 1,884,642 Work-in-process 201 1,616 679 Raw materials and supplies 11,095 7,505 13,058 ---------- ---------- ---------- Total inventories 2,094,840 1,858,772 1,898,379 Prepaid expenses 190,580 214,649 194,357 ---------- ---------- ---------- Total Current Assets 2,574,091 2,398,390 2,415,553 Property, plant, equipment and leasehold improvements, at cost 1,978,855 1,886,164 1,836,340 Less accumulated depreciation and amortization 633,345 583,964 618,088 ---------- ---------- ---------- Net property, plant, equipment and leasehold improvements 1,345,510 1,302,200 1,218,252 ---------- ---------- ---------- Goodwill (net of accumulated amortization of $88,043 at June 30, 1994, $81,531 at December 31, 1993 and $75,081 at June 30, 1993) 436,215 443,678 424,021 Deferred charges and other assets 107,745 113,455 112,716 Leased property under capital leases, net of accumulated amortization 13,555 14,677 15,636 ---------- ---------- ---------- Total Assets $4,477,116 $4,272,400 $4,186,178 ========== ========== ==========
See accompanying notes to consolidated condensed financial statements. (continued) 4 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of June 30, 1994, December 31, 1993 and June 30, 1993 ($ and shares in thousands, except per share data) June 30, December 31, June 30, 1994 1993 1993 (Unaudited) (Unaudited) ----------- ------------ ----------- LIABILITIES Current Liabilities: Accounts payable $ 626,081 $ 567,131 $ 522,938 Accrued expenses 416,276 585,997 453,579 Notes payable 529,100 90,000 456,500 Federal income taxes payable 8,071 74,376 - Other current liabilities 10,470 10,593 7,437 --------- --------- --------- Total Current Liabilities 1,589,998 1,328,097 1,440,454 --------- --------- --------- Long-term debt 341,661 341,763 348,928 Deferred Federal income taxes 88,552 83,333 34,516 Other long-term liabilities 167,222 177,173 242,810 Minority interests in subsidiaries 75,423 93,858 62,933 REDEEMABLE PREFERRED STOCK Cumulative preferred stock, Series B, $4.00 dividend, par value $100, redeemable at par plus accrued dividends; authorized and issued 17 shares with 4 held in treasury as of June 30, 1994, December 31, 1993 and June 30, 1993 1,330 1,330 1,334
See accompanying notes to consolidated condensed financial statements. (continued) 5 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of June 30, 1994, December 31, 1993 and June 30, 1993 ($ and shares in thousands, except per share data) June 30, December 31, June 30, 1994 1993 1993 (Unaudited) (Unaudited) ----------- ------------ ----------- SHAREHOLDERS' EQUITY Preference stock, $1.00 par value, authorized 50,000 shares; Series One ESOP Convertible, liquidation value $53.45; 6,443 shares issued and outstanding at June 30 1994, 6,499 at December 31, 1993, and 6,561 at June 30, 1993 $ 344,379 $ 347,346 $ 350,664 Guaranteed ESOP Obligation (328,570) (328,570) (335,877) Common stock, par value $1.00, authorized 300,000 shares; issued 111,385 at June 30, 1994, 111,278 at December 31, 1993 and 111,223 at June 30, 1993; outstanding, 105,508 at June 30, 1994, 105,346 at December 31, 1993 and 105,229 at June 30, 1993, net of shares held in treasury 111,385 111,278 111,223 Capital surplus 45,624 42,123 39,739 Retained earnings 2,327,043 2,364,322 2,182,150 Common stock in treasury, at cost; 5,877 shares at June 30, 1994, 5,932 at December 31, 1993, and 5,994 at June 30, 1993 (286,931) (289,653) (292,696) ---------- ---------- ---------- Total Shareholders' Equity 2,212,930 2,246,846 2,055,203 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $4,477,116 $4,272,400 $4,186,178 ========== ========== ==========
See accompanying notes to consolidated condensed financial statements. 6 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) ($ in thousands) Six Months Ended ---------------------------- June 30, June 30, 1994 1993 ---------- --------- Net Cash Used in Operating Activities $(145,860) $(150,752) Cash Flows from Investing Activities: Additions to property, plant, equipment and leasehold improvements (155,815) (151,037) Proceeds from sale or disposal of assets 64,084 48,713 Acquisitions, net of cash - (14,273) ---------- --------- Net Cash Used in Investing Activities (91,731) (116,597) ---------- --------- Cash Flows from Financing Activities: Increase in notes payable 439,100 456,500 Decrease in book overdrafts (93,067) (122,643) Dividends paid (118,469) (134,356) Decrease in long-term debt and obligations under capital leases (2,046) (5,648) Proceeds from issuance of common stock 1,954 3,090 Other - (3) ---------- --------- Net Cash Provided by Financing Activities 227,472 196,940 ---------- --------- Net decrease in cash and cash equivalents (10,119) (70,409) Cash and cash equivalents at beginning of year 80,971 145,138 ---------- --------- Cash and Cash Equivalents at End of Period $ 70,852 $ 74,729 ========= =========
See accompanying notes to consolidated condensed financial statements. 7 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of June 30, 1994 and 1993 and the results of operations for the second quarter and six month periods then ended and of cash flows for the six month periods then ended. Because of the seasonality of the specialty retailing business, operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. 2. Certain reclassifications have been made to the consolidated condensed financial statements of the prior year to conform to the current year presentation. 3. Primary earnings per share is computed by dividing net earnings, after deducting net preferred dividends on redeemable preferred stock and Series One ESOP Convertible Preference Stock ("ESOP Preference Stock"), by the weighted average number of common shares outstanding during the period. Fully diluted earnings per share is computed based upon the assumed conversion of the ESOP Preference Stock into common stock. Net earnings is adjusted for the difference between the current dividend on the ESOP Preference Stock and the common stock, and for certain non-discretionary expenses based on net earnings. The conversion of the ESOP Preference Stock and adjustments described above are immatrerial or anti-dilutive and, therefore, fully diluted earnings per share has not been presented. 4. The components of net interest expense are as follows: Second Quarter Six Months Ended June 30, Ended June 30 ------------------ -------------------- 1994 1993 1994 1993 ---- ---- ---- ---- ($ in thousands) ---------------- Interest expense $5,704 $4,109 $10,029 $7,535 Interest income (160) (49) (337) (203) Capitalized interest (139) (126) (191) (219) ------ ------ ------- ------ Interest expense, net $5,405 $3,934 $ 9,501 $7,113 ====== ====== ======= ====== 5. During the six months ended June 30, 1994 and 1993, the Company had the following non-cash financing and investing activities: ($ in thousands) 1994 1993 ---------------- ---- ---- Performance share awards $1,558 $ - ======= ======= Fair value of assets acquired $ - $10,680 Cash paid - 10,488 ------- ------- Liabilities assumed $ - $ 192 ======= ======= Book value of stock reissued from treasury in connection with pooling of interests $ - $18,976 ======= ======= Note received for operations sold $ - $29,413 ======= ======= 6. On August 1, 1994, the Company completed the acquisition of a chain of 10 stores to sell off-price apparel in Puerto Rico for approximately $22.5 million. Pro forma financial results have not been presented for this acquisition as the operations are not material to the consolidated condensed financial statements of the Company. 8 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ Results of Operations - --------------------- For the Second Quarter Ended June 30, 1994 and 1993 - --------------------------------------------------- Consolidated net sales for the quarter ended June 30, 1994 were $2.51 billion, a decrease of 1.2% from consolidated net sales of $2.54 billion for the quarter ended June 30, 1993. Same store sales increased 1.9% over the prior year's period compared to an increase of 0.4% in 1993. Operating results for the quarter were unfavorably impacted by the timing of the Palm and Easter selling periods which occurred in the first quarter of 1994 as compared to the second quarter of 1993. In addition, the current year's accounting period had six fewer selling days than the prior year's quarter. Consolidated net sales excluded the Chess King, Accessory Lady and Prints Plus divisions after their respective dates of disposition in 1993. Adjusting for these dispositions, consolidated net sales for the quarter would have increased 0.6% over the 1993 quarter. For the second quarter of 1994, the Company reported consolidated net earnings of $45.6 million compared to consolidated net earnings of $74.5 million for the second quarter of 1993. Consolidated net earnings per share was $0.39 for the current year period as compared to $0.67 per share last year. For the quarter ended June 30, 1994, net sales for the prescription drugs, health and beauty aids segment increased 0.1% from the prior year period while same store sales increased 4.0%, as compared to an increase of 4.8% in 1993. Sales in 1994 benefited from improved front store business and the increased growth of the pharmacy business. Gross margin as a percentage of net sales for this segment declined due to an increase in the proportion of lower margined prescription sales to total sales. This segment's share of consolidated net sales in the second quarter of 1994 and 1993 was 40.8% and 40.3%, respectively. Net sales for the apparel segment decreased 2.2% in the second quarter of 1994 compared to the prior year period. Adjusting for the exclusion of Chess King and Accessory Lady after their disposals, net sales for this segment would have increased 2.8%. Same store sales increased 0.2% compared to a decrease of 2.5% in 1993. Positive sales results were reported at Wilsons due primarily to growth in accessories sales. Marshalls continued to be adversely affected, however, by competitive and promotional factors in the apparel business. Gross margin for the segment as a percentage of net sales decreased due to higher markdowns at Marshalls and Wilsons and the exclusion of higher margined businesses sold in 1993. For the second quarter of 1994, this segment represented 30.9% of consolidated net sales as compared to 31.2% in the same period last year. The footwear segment experienced a decrease in net sales of 2.8% for the quarter ended June 30, 1994 compared to the same period in 1993. This segment reported a 0.7% decrease in same store sales during the second quarter of 1994 as compared to a 0.6% decrease for the comparable prior year period. The decrease in net sales for the segment were attributable to Meldisco, which was adversely impacted by the timing of the Easter holiday and weather conditions, and due to the disappointing performance of FootAction. Thom McAn, however, reported continued positive results in its ongoing product lines which partially offset the impact of discontinuing its men's athletic and children's lines. Gross margin as a percentage of net sales improved for the segment as lower markdowns at Thom McAn offset higher markdowns at FootAction, while gross margin at Meldisco was flat with last year as a percentage of net sales. For the second quarter of 1994, this segment represented 17.7% of consolidated net sales, compared to 18.0% for the second quarter of 1993. (continued) 9 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ Net sales in the toys and household furnishings segment decreased 0.4% in the second quarter of 1994 as compared to the prior year period. Adjusting for the exclusion of Prints Plus after its date of disposition, net sales for this segment would have increased 1.9% for the quarter. Same store sales increased 2.8% for the quarter compared to a decrease of 5.3% in the second quarter of last year. Segment results were impacted positively by strong same store sales at Kay-Bee, largely attributable to the strong sales of male action figures and licensed product, and the increased availability of closeout merchandise. Linens 'n Things continued to yield strong sales growth from the increase in its superstore base and the continued expansion of its product offerings. Gross margin as a percentage of net sales declined from the prior year due to changes in sales mix within the segment and higher markdowns at Kay-Bee. This segment's net sales for the second quarter of 1994 represented 10.6% of the consolidated total as compared to 10.5% in 1993. Cost of goods sold, buying and warehousing costs as a percentage of consolidated net sales was 64.0% in the second quarter of 1994, compared to 63.5% in 1993. The increase resulted primarily from a change in sales mix toward lower margined categories, as well as increased markdowns. Store operating, selling, general and administrative expenses were 30.4% of consolidated net sales for the second quarter of 1994 compared to 28.8% in the prior year quarter. The increase was due primarily to the absence of holiday sales, which hindered the Company's ability to fully leverage fixed costs. Depreciation and amortization expense as a percentage of consolidated net sales was 2.1% for the second quarter of 1994 as compared to 2.0% in the 1993 quarter, reflecting the effect of the timing of holiday sales. Net interest expense totalled $5.4 million for the second quarter of 1994 as compared to $3.9 million in the second quarter of 1993. The increase in 1994 reflected the higher level of short-term borrowings as well as increased borrowing rates. Minority interests in net earnings for the second quarter were 0.6% of consolidated net sales in both 1994 and 1993 and are based on the profitability of the related operations. The Company's effective tax rate for the quarter was 27.5%, compared to 36.7% in the second quarter of 1993. The lower effective tax rate in 1994 is due to the relative mix of our businesses and the impact of the incomparability of earnings between the two periods. For the Six Months Ended June 30, 1994 and 1993 - ----------------------------------------------- Consolidated net sales for the six months ended June 30, 1994 were $4.89 billion, an increase of 6.9% over consolidated net sales of $4.57 billion for the six months ended June 30, 1993. Same store sales increased 3.5% over the prior year's period compared to an increase of 0.6% in 1993. Consolidated net sales excluded the Chess King, Accessory Lady and Prints Plus divisions after their respective dates of disposition in 1993. Adjusting for these dispositions, consolidated net sales for the six months would have increased 9.3% over the 1993 period. For the first six months of 1994, the Company reported consolidated net earnings of $43.1 million compared to consolidated net earnings of $52.8 million for the 1993 period. Consolidated net earnings per share was $0.33 for the current year period as compared to $0.43 per share last year. (continued) 10 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ For the six months ended June 30, 1994, net sales for the prescription drugs, health and beauty aids segment increased 9.7% over the prior year period while same store sales increased 5.5%, as compared to an increase of 4.7% in 1993. Sales in 1994 benefited from improved customer traffic from the May 1993 promotion to re-introduce the renovated Peoples stores, improved front store business and the continued growth of the pharmacy business, which offset the negative impact of unfavorable weather conditions in the Northeast during the first quarter. Gross margin as a percentage of net sales for the segment declined due to an increase in the proportion of lower margined prescription sales to total sales. This segment's share of consolidated net sales in the first six months of 1994 and 1993 was 42.0% and 41.0%, respectively. Net sales for the apparel segment increased 3.7% in the first six months of 1994 compared to the prior year period. Adjusting for the exclusion of Chess King and Accessory Lady after their disposals, net sales for this segment would have increased 10.3%. Same store sales increased 1.5% compared to a decrease of 3.3% in 1993. Moderate sales improvements were reported at Marshalls as it continued to be adversely affected by competitive and promotional factors in the apparel business, and from poor weather in January. Wilsons, however, experienced positive results, primarily in its expanded accessories lines. Gross margin for the segment as a percentage of net sales decreased due to higher markdowns and the exclusion of higher margined businesses sold in 1993. For the first half of 1994, this segment represented 30.0% of consolidated net sales as compared to 31.0% in the same period last year. The footwear segment experienced an increase in net sales of 5.9% for the six months ended June 30, 1994 compared to the same period in 1993. This segment reported a 1.0% increase in same store sales during the first six months of 1994 as compared to a 0.3% decrease for the comparable prior year period. Net sales for the segment were positively impacted by favorable results at Meldisco in the first quarter, which offset the disappointing performance of FootAction. Additionally, Thom McAn saw positive results in its ongoing product lines which have partially offset the impact of discontinuing its men's athletic and children's lines. Gross margin as a percentage of net sales was impacted by higher markdowns at Meldisco and FootAction. For the six month period of 1994, this segment represented 16.9% of consolidated net sales, compared to 17.0% for the first six months of 1993. Net sales in the toys and household furnishings segment increased 7.4% in the first six months of 1994 as compared to the prior year period. Adjusting for the exclusion of Prints Plus after its date of disposition, net sales for this segment would have increased 10.9% for the six months. Same store sales increased 4.6% for the first half of 1994 compared to a decrease of 2.0% in the first six months of last year. Segment results were impacted positively by strong same store sales at Kay-Bee, largely attributable to strong sales of male action figures and licensed product, increased availability of closeout merchandise and the favorable impact of its repricing strategy. Linens 'n Things continued to yield strong sales growth from the increased growth of its superstore base and the continued expansion of its product offerings. Gross margin as a percentage of net sales declined from the prior year due to higher markdowns at Kay-Bee and changes in sales mix within the segment. This segment's net sales for the first half of 1994 represented 11.1% of the consolidated total as compared to 11.0% in 1993. Cost of goods sold, buying and warehousing costs as a percentage of consolidated net sales was 65.2% in the first six months of 1994, compared to 64.5% in 1993. The increase resulted primarily from a change in sales mix toward lower margined categories, as well as increased markdowns. Store operating, selling, general and administrative expenses were 30.7% of consolidated net sales for the first six months of 1994 compared to 30.8% in the same period last year. The achievement of favorable variances were due primarily to more stringent management of variable expenses. Depreciation and amortization expense as a percentage of consolidated net sales was 2.1% for the first six months of 1994 as compared to 2.2% in the 1993 period, reflecting the lower store base resulting from our 1993 dispositions and the leveraging of costs resulting from same store sales growth. (continued) 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ Net interest expense totalled $9.5 million for the first six months of 1994 as compared to $7.1 million in the first six months of 1993. The increase in 1994 reflected the higher level of short-term borrowings as well as increased borrowing rates. Minority interests in net earnings were 0.4% of consolidated net sales for the first six months of both 1994 and 1993 and are based on the profitability of the related operations. The Company's effective tax rate for the six months was 27.6%, compared to 36.1% in the first six months of 1993. The lower effective tax rate in 1994 is due to the relative mix of our businesses. Financial Condition and Liquidity - --------------------------------- Inherent in the seasonality of the specialty retailing business are cyclical buildups of inventory prior to peak selling periods, the more significant of which are Christmas, Palm and Easter and Back-to-School. Although the Company finances its growth in operations and working capital requirements primarily through internally generated funds, short-term borrowings are also used to finance these seasonal inventory buildups. The short-term borrowings reach a peak in the Fall and are generally paid off with internally generated funds by year end. For the six months ended June 30, 1994, cash and cash equivalents decreased $10.1 million to $70.9 million as compared to a decrease of $70.4 million to $74.7 million for the first six months of 1993. The Company had short term borrowings of $529.1 million outstanding at June 30, 1994 and $456.5 million at June 30, 1993. The increase in the level of short-term borrowings was due primarily to maintenance of higher inventories for new stores and an expansion to larger store formats at several divisions. Net accounts receivable decreased by $26.2 million for the six months ended June 30, 1994 as compared to an increase of $2.9 million for the six months ended June 30, 1993. The increase in 1993 reflected the $29.4 million note received in connection with the sale of Chess King, while the 1994 decrease reflected the sale of the note. For the six months ended June 30, 1994, inventories increased $236.1 million to $2.1 billion. For the six months ended June 30, 1993, inventories increased $91.8 million to $1.9 billion. The larger increase in 1994 reflected the relatively higher stock levels required for the Company's larger store formats and lower LIFO reserves offset by the benefits derived by inventory management initiatives. Prepaid expenses decreased $24.1 million in the first six months of 1994 as compared to a decrease of $50.4 million in 1993. The larger decrease in 1993 was due to the deferred tax effect of utilizing reserves established in connection with the strategic realignment charge recorded in the fourth quarter of 1992. The decrease in accounts payable and accrued expenses of $110.8 million for the six months ended June 30, 1994, as compared to a decrease of $293.1 million in 1993, was primarily due to the timing of payments and relative levels of inventories maintained at each period end, as well as utilization in 1993 of certain reserves established in connection with the 1992 strategic realignment program. Capital additions of $155.8 million and $151.0 million in the first six months of 1994 and 1993, respectively, represented expenditures primarily for improvements to new and existing leased store locations, store equipment, information systems and distribution and office facilities. 12 REVIEW BY INDEPENDENT AUDITORS The June 30, 1994 and 1993 consolidated condensed financial statements included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick, independent auditors, in accordance with established professional standards and procedures for such a limited review. The report of KPMG Peat Marwick, commenting on their review, is included herein as Part I - Exhibit 1. 13 EX-1 2 EXHIBIT 1-PART 1 AND PART 2 Part 1-Exhibit 1 Independent Auditors' Report The Board of Directors and Shareholders of Melville Corporation: We have reviewed the consolidated condensed balance sheets of Melville Corporation and subsidiary companies as of June 30, 1994 and 1993, and the related consolidated condensed statements of earnings for the three month and six month periods ended June 30, 1994 and 1993, and the related consolidated condensed statements of cash flows for the six month periods ended June 30, 1994 and 1993. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with general accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Melville Corporation and subsidiary companies as of December 31, 1993 and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 10, 1994, except as to the Subsequent Event note, which is as of March 1, 1994, we expressed an unqualified opinion on those consolidated financial statements. Our report referred to above contains an explanatory paragraph that states that the Company changed its method of determining retail price indices used in the valuation of LIFO inventories in 1993. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1993, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/KPMG Peat Marwick New York, New York July 26, 1994 14 Part II. - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K a) EXHIBIT INDEX Exhibit 11 Computation of Per Share Earnings 15 Letter re: Unaudited Interim Financial Information b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended June 30, 1994. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MELVILLE CORPORATION -------------------- (REGISTRANT) /s/ ROBERT D. HUTH ------------------------ Robert D. Huth Executive Vice President and Chief Financial Officer Date: August 12, 1994 15 EX-11 3 EXHIBIT 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER SHARE ($ and shares in thousands, except per share data) Exhibit 11 Three Months Ended Three Months Ended June 30, June 30, 1994 1993 ---- ---- PRIMARY EARNINGS PER COMMON SHARE: Net earnings $45,602 $74,525 Less: Preferred dividends, net 4,319 3,915 ------- ------- Net earnings used to calculate primary earnings per share $41,283 $70,610 ======= ======= Weighted average number of shares outstanding 105,447 104,994 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 103 275 ------- ------- Weighted average number of shares used to compute primary earnings per share 105,550 105,269 ======= ======= Primary earnings per share $0.39 $0.67 ======= ======= FULLY DILUTED EARNINGS PER COMMON SHARE: Net earnings $45,602 $74,525 Less: Preferred dividends 13 13 ------- ------- Net earnings used to calculate fully diluted earnings per share, before adjustments 45,589 74,512 Less: Adjustments resulting principally from the assumed conversion of the Series One ESOP Convertible Preference Stock, net of tax benefit 1,080 184 ------- ------- Net earnings used to calculate fully diluted earnings per share $44,509 $74,328 ======= ======= Weighted average number of shares used to compute primary earnings per share 105,447 104,994 Add: Weighted average shares of Series One Convertible Preference Stock assuming conversion 6,965 6,734 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 104 277 Add: Weighted average number of shares which could have been issued upon conversion of 4 7/8% debentures 6 6 ------- ------- Weighted average number of shares used to compute fully diluted earnings per share 112,522 112,011 ======= ======= Fully diluted earnings per share $0.40 $0.66 ======= =======
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER SHARE ($ and shares in thousands, except per share data) Exhibit 11 Six Months Ended Six Months Ended June 30, June 30, 1994 1993 ---- ---- PRIMARY EARNINGS PER COMMON SHARE: Net earnings $43,097 $52,839 Less: Preferred dividends, net 8,639 7,830 ------- ------- Net earnings used to calculate primary earnings per share $34,458 $45,009 ======= ======= Weighted average number of shares outstanding 105,404 104,888 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 100 360 ------- ------- Weighted average number of shares used to compute primary earnings per share 105,504 105,248 ======= ======= Primary earnings per share $0.33 $0.43 ======= ======= FULLY DILUTED EARNINGS PER COMMON SHARE: Net earnings $43,097 $52,839 Less: Preferred dividends 27 26 ------- ------- Net earnings used to calculate fully diluted earnings per share, before adjustments 43,070 52,813 Less: Adjustments resulting principally from the assumed conversion of the Series One ESOP Convertible Preference Stock, net of tax benefit 2,739 1,237 ------- ------- Net earnings used to calculate fully diluted earnings per share $40,331 $51,576 ======= ======= Weighted average number of shares used to compute primary earnings per share 105,404 104,888 Add: Weighted average shares of Series One Convertible Preference Stock assuming conversion 6,965 6,734 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 103 361 Add: Weighted average number of shares which could have been issued upon conversion of 4 7/8% debentures 6 6 ------- ------- Weighted average number of shares used to compute fully diluted earnings per share 112,478 111,989 ======= ======= Fully diluted earnings per share $0.36 $0.46 ======= =======
EX-15 4 EXHIBIT 15 Exhibit 15 Melville Corporation Rye, New York Board of Directors: Re: Registration Statements Numbers 33-40251, 33-17181 and 2-97913 on Form S-8 and Numbers 33-62664 and 33-34946 on Form S-3 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 26, 1994 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. Very truly yours, /S/ KPMG Peat Marwick New York, New York August 12, 1994 -----END PRIVACY-ENHANCED MESSAGE-----