-----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, cwbhpvifU5mCKyh9YXi1ZrQ59MdatZIr2PwWajvwM5+Uuh5Ck2SlfAjpf/awV/lc 7FsFQ+Db8apyfkvi+OTwKg== 0000891092-94-000045.txt : 19941116 0000891092-94-000045.hdr.sgml : 19941116 ACCESSION NUMBER: 0000891092-94-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941001 FILED AS OF DATE: 19941115 SROS: NYSE 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: 94560253 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 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 October 1, 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 October 29, 1994 ----- ------------------------------- Common Stock, $1 par value 105,592,592
INDEX ----- Part I. - Financial Information Page No. -------- Consolidated Condensed Statements of Earnings - Third Quarter and Nine Months Ended October 1, 1994 and September 25, 1993 3 Consolidated Condensed Balance Sheets - As of October 1, 1994, December 31, 1993 and September 25, 1993 4 - 6 Consolidated Condensed Statements of Cash Flows - Nine Months Ended October 1, 1994 and September 25, 1993 7 Notes to Consolidated Condensed Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 Review by Independent Auditors 13 Exhibit I - - Report of Review by Independent Auditors 14 Part II. - Other Information 15
2 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) ($ and shares in thousands, except per share data)
Third Quarter Ended Nine Months Ended ------------------------ ------------------------ October 1, September 25, October 1, September 25, 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Net sales $2,737,016 $2,355,376 $7,624,325 $6,925,782 Cost of goods sold, buying and warehousing costs 1,770,244 1,502,217 4,954,104 4,451,039 ---------- ---------- ---------- ---------- 966,772 853,159 2,670,221 2,474,743 ---------- ---------- ---------- ---------- Store operating, selling, general and administrative expenses 809,743 717,499 2,313,842 2,123,693 Depreciation and amortization 53,898 47,583 157,392 146,433 ---------- ---------- ---------- ---------- 863,641 765,082 2,471,234 2,270,126 ---------- ---------- ---------- ---------- Operating profit 103,131 88,077 198,987 204,617 Interest expense, net 10,018 8,346 19,519 15,459 ---------- ---------- ---------- ---------- Earnings before income taxes and minority interests 93,113 79,731 179,468 189,158 Provision for income taxes 28,650 27,159 52,523 66,677 ---------- ---------- ---------- ---------- Earnings before minority interests 64,463 52,572 126,945 122,481 Minority interests in net earnings 12,745 11,068 32,130 28,138 ---------- ---------- ---------- ---------- Net earnings $ 51,718 $ 41,504 $ 94,815 $ 94,343 ========== ========== ========== ========== Net earnings per share of common stock $ 0.45 $ 0.35 $ 0.78 $ 0.78 ========== ========== ========== ========== Dividends per share of common stock $ 0.38 $ 0.38 $ 1.14 $ 1.14 ========== ========== ========== ========== Weighted average common shares outstanding 105,527 105,238 105,443 104,994 ========== ========== ========== ========== See accompanying notes to consolidated condensed financial statements.
3 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of October 1, 1994, December 31, 1993 and September 25, 1993 ($ in thousands)
October 1, December 31, September 25, 1994 1993 1993 ASSETS (Unaudited) (Unaudited) ------ ------------- ------------ ------------ Current Assets: Cash and cash equivalents $ 82,886 $ 80,971 $ 91,668 Accounts receivable (net of allowance for doubtful accounts of $20,631 at October 1, 1994, $32,534 at December 31, 1993 and $26,427 at September 25, 1993) 253,577 243,998 275,464 Inventories: Finished goods 2,404,444 1,849,651 2,163,588 Work-in-process 712 1,616 1,936 Raw materials and supplies 9,326 7,505 8,641 ---------- ---------- ---------- Total inventories 2,414,482 1,858,772 2,174,165 Prepaid expenses 193,549 214,649 177,391 ---------- ---------- ---------- Total Current Assets 2,944,494 2,398,390 2,718,688 ---------- ---------- ---------- Property, plant, equipment and leasehold improvements and leased property under capital leases, at cost 2,135,423 1,934,029 1,960,344 Less accumulated depreciation and amortization 705,445 617,152 677,308 ---------- ---------- ---------- Net property, plant, equipment and leasehold improvements and leased property under capital leases 1,429,978 1,316,877 1,283,036 ---------- ---------- ---------- Goodwill (net of accumulated amortization of $91,497 at October 1, 1994, $81,531 at December 31, 1993 and $78,240 at September 25, 1994) 448,156 443,678 422,642 Deferred charges and other assets 108,558 113,455 116,579 ---------- ---------- ---------- Total Assets $4,931,186 $4,272,400 $4,540,945 ========== ========== ========== See accompanying notes to consolidated condensed financial statements. (Continued)
4 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of October 1, 1994, December 31, 1993 and September 25, 1993 ($ and shares in thousands, except per share data)
October 1, December 31, September 25, 1994 1993 1993 (Unaudited) (Unaudited) ---------- ---------- ---------- LIABILITIES - ----------- Current Liabilities: Accounts payable $ 780,630 $ 567,131 $ 699,886 Accrued expenses 459,052 585,997 466,813 Notes payable 749,932 90,000 608,000 Federal income taxes payable 21,850 74,376 -- Other current liabilities 10,685 10,593 7,161 ---------- ---------- ---------- Total Current Liabilities 2,022,149 1,328,097 1,781,860 ---------- ---------- ---------- Long-term debt 341,589 341,763 348,885 Deferred income taxes 90,621 83,333 38,550 Other long-term liabilities 161,936 177,173 238,121 Minority interests in subsidiaries 88,398 93,858 74,287 REDEEMABLE PREFERRED STOCK - -------------------------- Cumulative preferred stock, Series B, $4.00 dividend, par value $100, redeemable at par plus accrued dividends; authorized and issued 17 shares with 4 held in treasury as of October 1, 1994, December 31, 1993 and September 25, 1993 1,330 1,330 1,334 See accompanying notes to consolidated condensed financial statements. (Continued)
5 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of October 1, 1994, December 31, 1993 and September 25, 1993 ($ and shares in thousands, except per share data)
October 1, December 31, September 25, 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; 6,408 shares issued and outstanding at October 1, 1994, 6,499 at December 31, 1993, and 6,561 at September 25, 1993 $ 342,507 $ 347,346 $ 350,664 Guaranteed ESOP Obligation (328,570) (328,570) (335,877) Common stock, par value $1.00, authorized 300,000 shares; issued 111,402 at October 1, 1994, 111,278 at December 31, 1993 and 111,254 at September 25, 1993; outstanding, 105,561 at October 1, 1994, 105,346 at December 31, 1993 and 105,260 at September 25, 1993, net of shares held in treasury 111,402 111,278 111,254 Capital surplus 46,272 42,123 40,905 Retained earnings 2,338,767 2,364,322 2,183,658 Common stock in treasury, at cost; 5,842 shares at October 1, 1994, 5,932 at December 31, 1993, and 5,994 at September 25, 1993 (285,215) (289,653) (292,696) ---------- ---------- ---------- Total Shareholders' Equity 2,225,163 2,246,846 2,057,908 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $4,931,186 $4,272,400 $4,540,945 ========== ========== ========== See accompanying notes to consolidated condensed financial statements.
6 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) ($ in thousands)
Nine Months Ended ---------------------- October 1, September 25, 1994 1993 --------- --------- Net Cash Used in Operating Activities $(207,663) $(160,954) --------- --------- Cash Flows from Investing Activities: Additions to property, plant, equipment and leasehold improvements (268,619) (250,296) Proceeds from sale or disposal of assets 73,529 59,077 Acquisitions, net of cash (28,224) (17,349) --------- --------- Net Cash Used in Investing Activities (223,314) (208,568) --------- --------- Cash Flows from Financing Activities: Increase in notes payable 659,932 608,000 Decrease in book overdrafts (68,122) (115,407) Dividends paid (158,462) (174,350) Decrease in long-term debt and obligations under capital leases (2,940) (6,762) Proceeds from issuance of common stock 2,488 4,574 Other (4) (3) --------- --------- Net Cash Provided by Financing Activities 432,892 316,052 --------- --------- Net increase (decrease) in cash and cash equivalents 1,915 (53,470) Cash and cash equivalents at beginning of year 80,971 145,138 --------- --------- Cash and Cash Equivalents at End of Period $ 82,886 $ 91,668 ========= ========= 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 October 1, 1994 and September 25, 1993 and the results of operations for the third quarter and nine month periods then ended and cash flows for the nine 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 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 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 immaterial or anti-dilutive and, therefore, fully diluted earnings per share has not been presented. 4. The components of net interest expense are as follows: Third Quarter Ended Nine Months Ended ------------------- ----------------- Oct. 1, Sept. 25, Oct. 1, Sept. 25, 1994 1993 1994 1993 -------- -------- -------- -------- ($ in thousands) - --------------- Interest expense $ 10,570 $ 8,690 $ 20,599 $ 16,226 Interest income (494) (206) (831) (409) Capitalized interest (58) (138) (249) (358) -------- -------- -------- -------- Interest expense, net $ 10,018 $ 8,346 $ 19,519 $ 15,459 ======== ======== ======== ======== 5. During the nine months ended October 1, 1994 and September 25, 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 $ 32,554 $ 15,340 Cash paid 28,224 13,577 -------- -------- Liabilities assumed $ 4,330 $ 1,763 ======== ======== Book value of stock reissued from treasury in connection with pooling of interests $ -- $ 18,976 ======== ======== Note received for operations sold $ -- $ 29,413 ======== ======== 6. During the third quarter of 1994, the Company completed the acquisitions of a chain of 12 stores to sell off-price apparel in Puerto Rico, and the assets of four stores selling prescription drugs, health and beauty aids and three stores selling athletic footwear and apparel for an aggregate of approximately $28.2 million. Pro forma financial results have not been presented for these acquisitions 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 Third Quarter Ended October 1, 1994 and September 25, 1993 - ------------------------------------------------------------------ Consolidated net sales for the quarter ended October 1, 1994 were $2.74 billion, an increase of 16.2% over consolidated net sales of $2.36 billion for the quarter ended September 25, 1993. Same store sales increased 2.8% over the prior year's period compared to a decrease of 0.1% in 1993. Operating results for the quarter were favorably impacted by the inclusion of six additional selling days in the current year period than in the prior year quarter. Consolidated results, however, excluded the Accessory Lady division after its disposition in 1993. Adjusting for this disposition, consolidated net sales for the quarter would have increased 16.8% over the 1993 quarter. For the third quarter of 1994, the Company reported consolidated net earnings of $51.7 million compared to consolidated net earnings of $41.5 million for the third quarter of 1993. Consolidated net earnings per share was $0.45 for the current year period as compared to $0.35 per share last year. For the quarter ended October 1, 1994, net sales for the prescription drugs, health and beauty aids segment increased 16.1% from the prior year period while same store sales increased 5.5%, as compared to an increase of 6.1% 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 reflects the increase in the proportion of lower margined prescription sales to total sales. This segment's share of consolidated net sales was 38.8% in the third quarter of both 1994 and 1993. Net sales for the apparel segment increased 12.9% in the third quarter of 1994 compared to the prior year period. Adjusting for the exclusion of Accessory Lady after its disposal, net sales for this segment would have increased 14.8%. Same store sales decreased 3.8% compared to a decrease of 3.9% in 1993. Marshalls and Wilsons continued to be adversely affected 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. For the third quarter of 1994, this segment represented 30.7% of consolidated net sales as compared to 31.6% in the same period last year. Net sales for the footwear segment increased by 15.1% for the quarter ended October 1, 1994 compared to the same period in 1993. This segment reported a 3.7% increase in same store sales during the third quarter of 1994 as compared to a 4.8% decrease for the comparable prior year period. Same store sales growth was experienced by all divisions in this segment as expectations of cold weather and a complementary fashion trend aided sales at Meldisco and Thom McAn, which also saw positive results in its ongoing product lines. FootAction also continued its strong net sales growth as the chain continues to expand. Gross margin as a percentage of net sales declined for the segment as higher markdowns at FootAction offset improvements at Meldisco and Thom McAn. For the third quarter of 1994, this segment represented 17.9% of consolidated net sales, compared to 18.1% for the third 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 increased 27.1% in the third quarter of 1994 as compared to the prior year period. Same store sales increased 11.2% for the quarter compared to a decrease of 2.0% in the third quarter of last year. Segment results were impacted positively by very strong same store sales at Kay-Bee, largely attributable to the 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 the sales mix within this segment. This segment's net sales for the third quarter of 1994 represented 12.6% of the consolidated total as compared to 11.5% in 1993. Cost of goods sold, buying and warehousing costs as a percentage of consolidated net sales was 64.7% in the third quarter of 1994, compared to 63.8% 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 29.6% of consolidated net sales for the third quarter of 1994 compared to 30.5% in the prior year quarter. The decrease was due primarily to a stricter control of variable costs and enhanced operational efficiencies. Depreciation and amortization expense as a percentage of consolidated net sales was 2.0% for the third quarter of both 1994 and 1993. Net interest expense totalled $10.0 million for the third quarter of 1994 as compared to $8.3 million in the third 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 third quarter were 0.5% 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 30.8%, compared to 34.1% in the third quarter of 1993. The lower effective tax rate in 1994 is due to the relative mix of our businesses. For the Nine Months Ended October 1, 1994 and September 25, 1993 - ---------------------------------------------------------------- Consolidated net sales for the nine months ended October 1, 1994 were $7.62 billion, an increase of 10.1% over consolidated net sales of $6.93 billion for the nine months ended September 25, 1993. Same store sales increased 3.2% over the prior year's period compared to an increase of 0.3% in 1993. Operating results for the nine month period were favorably impacted by the inclusion of six additional selling days in the current year period than in the prior year. Consolidated net sales also 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 nine months would have increased 11.9% over the 1993 period. For the first nine months of 1994, the Company reported consolidated net earnings of $94.8 million compared to consolidated net earnings of $94.3 million for the 1993 period. Consolidated net earnings per share was $0.78 for both periods. (Continued) 10 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ For the nine months ended October 1, 1994, net sales for the prescription drugs, health and beauty aids segment increased 11.8% over the prior year period while same store sales increased 5.5%, as compared to an increase of 5.2% 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 reflects the increase in the proportion of lower margined prescription sales to total sales. This segment's share of consolidated net sales in the first nine months of 1994 and 1993 was 40.9% and 40.2%, respectively. Net sales for the apparel segment increased 6.9% in the first nine 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 11.9%. Same store sales decreased 0.5% compared to a decrease of 3.5% in 1993. Marshalls and Wilsons continue to be adversely affected by negative trends pervasive in the apparel industry, particularly in their respective market segments, and were also affected by poor weather in the first quarter. 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 nine month period of 1994, this segment represented 30.3% of consolidated net sales as compared to 31.2% in the same period last year. The footwear segment experienced an increase in net sales of 9.2% for the nine months ended October 1, 1994 compared to the same period in 1993. This segment reported a 2.0% increase in same store sales during the first nine months of 1994 as compared to a 1.9% decrease for the comparable prior year period. Net sales for the segment were positively impacted by favorable results at Meldisco, and the continued expansion 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 nine month period of 1994, this segment represented 17.2% of consolidated net sales, compared to 17.4% for the first nine months of 1993. Net sales in the toys and household furnishings segment increased 14.3% in the first nine 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 16.6% for the nine months. Same store sales increased 7.0% for the current year period compared to a decrease of 2.0% in the first nine months of last year. Segment results were impacted positively by robust same store sales growth at Kay-Bee, largely attributable to strong sales of male action figures and licensed product, increased availability of closeout merchandise and the positive impact of its repricing strategy. Linens 'n Things continued to yield solid 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 the sales mix within the segment. This segment's net sales for the first nine months of 1994 represented 11.6% of the consolidated total as compared to 11.2% in 1993. Cost of goods sold, buying and warehousing costs as a percentage of consolidated net sales was 65.0% in the first nine months of 1994, compared to 64.3% 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 30.3% of consolidated net sales for the first nine months of 1994 compared to 30.7% 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 both nine month periods in 1994 and 1993. (Continued) 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------ Net interest expense totalled $19.5 million for the first nine months of 1994 as compared to $15.5 million in the first nine 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 nine months of both 1994 and 1993 and are based on the profitability of the related operations. The Company's effective tax rate for the nine months was 29.3%, compared to 35.2% in the first nine 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 with the inventory buildup in anticipation of the Christmas selling season. For the nine months ended October 1, 1994, cash and cash equivalents increased $1.9 million to $82.9 million as compared to a decrease of $53.5 million to $91.7 million for the first nine months of 1993. The Company had short term borrowings of $749.9 million outstanding at October 1, 1994 and $608.0 million at September 25, 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 increased by $9.6 million for the nine months ended October 1, 1994 as compared to an increase of $30.3 million for the nine months ended September 25, 1993. The increase in 1993 reflected the $29.4 million note received in connection with the sale of Chess King, while the smaller increase in 1994 reflected the sale of the note. For the nine months ended October 1, 1994, inventories increased $555.7 million to $2.4 billion. For the nine months ended September 25, 1993, inventories increased $367.6 million to $2.2 billion. The larger increase in 1994 reflected the relatively higher stock levels required for the Company's new stores and larger store formats and lower LIFO reserves, offset by the benefits derived by inventory management initiatives. Prepaid expenses decreased $21.1 million in the first nine months of 1994 as compared to a decrease of $67.4 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 increase in accounts payable and accrued expenses of $86.6 million for the nine months ended October 1, 1994, as compared to a decrease of $119.0 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. The change in the Federal income taxes payable balance from the prior year level is due primarily to losses in 1993 for tax purposes in connection with the execution of the strategic realignment program. Capital additions of $268.6 million and $250.3 million in the first nine 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 October 1, 1994 and September 25, 1993 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 EX-1 2 INDEPENDENT AUDITORS' REPORT 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 October 1, 1994 and September 25, 1993, and the related consolidated condensed statements of earnings for the three month and nine month periods ended October 1, 1994 and September 25, 1993, and the related consolidated condensed statements of cash flows for the nine month periods ended October 1, 1994 and September 25, 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 LLP New York, New York October 25, 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 27 Financial Data Schedules b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended October 1, 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: November 14, 1994 ------------------- 15 EX-11 3 EARNINGS DATA Exhibit 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER SHARE ($ and shares in thousands, except per share data)
Nine Months Ended Nine Months Ended October 1, September 25, 1994 1993 -------- -------- PRIMARY EARNINGS PER COMMON SHARE: Net earnings $ 94,815 $ 94,343 Less: Preferred dividends, net 12,856 12,485 -------- -------- Net earnings used to calculate primary earnings per share $ 81,959 $ 81,858 ======== ======== Weighted average number of shares outstanding 105,443 104,994 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 91 309 -------- -------- Weighted average number of shares used to compute primary earnings per share 105,534 105,303 ======== ======== Primary earnings per share $ 0.78 $ 0.78 ======== ======== FULLY DILUTED EARNINGS PER COMMON SHARE: Net earnings $ 94,815 $ 94,343 Less: Preferred dividends 40 40 -------- -------- Net earnings used to calculate fully diluted earnings per share, before adjustments 94,775 94,303 Less: Adjustments resulting principally from the assumed conversion of the Series One ESOP Convertible Preference Stock, net of tax benefit 3,234 1,918 -------- -------- Net earnings used to calculate fully diluted earnings per share $ 91,541 $ 92,385 ======== ======== Weighted average number of shares used to compute primary earnings per share 105,443 104,994 Add: Weighted average shares of Series One Convertible Preference Stock assuming conversion 7,065 6,706 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 92 309 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 112,606 112,015 ======== ======== Fully diluted earnings per share $ 0.81 $ 0.82 ======== ========
Exhibit 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER SHARE ($ and shares in thousands, except per share data)
Third Quarter Ended Third Quarter Ended October 1, September 25, 1994 1993 -------- -------- PRIMARY EARNINGS PER COMMON SHARE: Net earnings $ 51,718 $ 41,504 Less: Preferred dividends, net 4,285 4,161 -------- -------- Net earnings used to calculate primary earnings per share $ 47,433 $ 37,343 ======== ======== Weighted average number of shares outstanding 105,514 105,238 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 59 238 -------- -------- Weighted average number of shares used to compute primary earnings per share 105,573 105,476 ======== ======== Primary earnings per share $ 0.45 $ 0.35 ======== ======== FULLY DILUTED EARNINGS PER COMMON SHARE: Net earnings $ 51,718 $ 41,504 Less: Preferred dividends 13 13 -------- -------- Net earnings used to calculate fully diluted earnings per share, before adjustments 51,705 41,491 Less: Adjustments resulting principally from the assumed conversion of the Series One ESOP Convertible Preference Stock, net of tax benefit 640 839 -------- -------- Net earnings used to calculate fully diluted earnings per share $ 51,065 $ 40,652 ======== ======== Weighted average number of shares used to compute primary earnings per share 105,514 105,238 Add: Weighted average shares of Series One Convertible Preference Stock assuming conversion 7,065 6,706 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 59 238 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 112,644 112,188 ======== ======== Fully diluted earnings per share $ 0.45 $ 0.36 ======== ========
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 October 25, 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 LLP ------------------------ New York, New York November 14, 1994 EX-27 5 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 NINE-MOS DEC-31-1994 OCT-01-1994 82,886 0 274,208 20,631 2,414,482 2,944,494 2,135,423 705,445 4,931,186 2,022,149 341,589 111,402 1,330 0 2,113,761 4,931,186 7,624,325 7,624,325 4,954,104 4,954,104 2,471,234 0 19,519 179,468 52,523 94,815 0 0 0 94,815 0.78 0.78
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