0000891092-95-000145.txt : 19950816 0000891092-95-000145.hdr.sgml : 19950816 ACCESSION NUMBER: 0000891092-95-000145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19950815 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELVILLE CORP CENTRAL INDEX KEY: 0000064803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [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: 95564204 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 July 1, 1995 Commission File Number 1-1011 MELVILLE CORPORATION (Exact Name of registrant as specified in its charter) NEW YORK 04-1611460 (State or other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) One Theall Road, Rye, New York 10580 (Address of principal executive offices) (Zip Code) (914) 925-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No _____ Number of shares outstanding of the issuer's Common Stock: Class Outstanding at July 29, 1995 ----- ---------------------------- Common Stock, $1 par value 105,047,459 INDEX Part I. - Financial Information Page No. -------- Consolidated Condensed Statements of Earnings - Second Quarter and Six Months Ended July 1, 1995 and June 30, 1994 3 Consolidated Condensed Balance Sheets - As of July 1, 1995, December 31, 1994 and June 30, 1994 4 - 6 Consolidated Condensed Statements of Cash Flows - Six Months Ended July 1, 1995 and June 30, 1994 7 Notes to Consolidated Condensed Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 12 Review by Independent Auditors 13 Exhibit I - - Report of Review by Independent Auditors 14 Part II. - Other Information 15 2 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) ($ and shares in thousands, except per share data)
Second Quarter Ended Six Months Ended ------------------------ ------------------------- July 1, June 30, July 1, June 30, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Net sales $2,770,166 $2,507,469 $5,262,208 $4,887,308 Cost of goods sold, buying and warehousing costs 1,815,815 1,604,242 3,503,093 3,183,859 ---------- ---------- ---------- ---------- 954,351 903,227 1,759,115 1,703,449 ---------- ---------- ---------- ---------- Store operating, selling, general and administrative expenses 815,325 762,056 1,596,350 1,504,099 Depreciation and amortization 57,593 52,159 116,508 103,494 ---------- ---------- ---------- ---------- 872,918 814,215 1,712,858 1,607,593 ---------- ---------- ---------- ---------- Operating profit 81,433 89,012 46,257 95,856 Interest expense, net 12,735 5,405 21,349 9,501 ---------- ---------- ---------- ---------- Earnings before income taxes and minority interests 68,698 83,607 24,908 86,355 Income tax provision 23,441 22,975 3,974 23,873 ---------- ---------- ---------- ---------- Earnings before minority interests 45,257 60,632 20,934 62,482 Minority interests in net earnings 14,175 15,030 16,300 19,385 ---------- ---------- ---------- ---------- Net earnings $ 31,082 $ 45,602 $ 4,634 $ 43,097 ========== ========== ========== ========== Net earnings (loss) per share of common stock $ 0.25 $ 0.39 $ (0.04) $ 0.33 ========== ========== ========== ========== Dividends per share of common stock $ 0.38 $ 0.38 $ 0.76 $ 0.76 ========== ========== ========== ========== Weighted average common shares outstanding 104,892 105,447 105,083 105,404 ========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements. 3 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of July 1, 1995, December 31, 1994 and June 30, 1994 ($ in thousands)
July 1, December 31, June 30, 1995 1994 1994 (Unaudited) (Unaudited) ---------- ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 82,664 $ 117,035 $ 70,852 Accounts receivable (net of allowance for doubtful accounts of $13,914 at July 1, 1995, $18,858 at December 31, 1994 and $22,917 at June 30, 1994) 192,622 229,833 217,819 Inventories: Finished goods 2,267,228 2,131,041 2,083,544 Work-in-process 2,267 645 201 Raw materials and supplies 15,293 6,557 11,095 ---------- ---------- ---------- Total inventories 2,284,788 2,138,243 2,094,840 Prepaid expenses 170,216 165,388 190,580 ---------- ---------- ---------- Total Current Assets 2,730,290 2,650,499 2,574,091 ---------- ---------- ---------- Property, plant, equipment, leasehold improvements and leased property under capital leases, at cost 2,331,499 2,231,841 2,026,720 Less accumulated depreciation and amortization 765,505 704,919 667,655 ---------- ---------- ---------- Net property, plant, equipment, leasehold improvements and leased property under capital leases 1,565,994 1,526,922 1,359,065 ---------- ---------- ---------- Goodwill (net of accumulated amortization of $102,177 at July 1, 1995, $94,987 at December 31, 1994 and $88,043 at June 30, 1994) 441,744 448,427 436,215 Deferred charges and other assets 113,422 109,641 107,745 ---------- ---------- ---------- Total Assets $4,851,450 $4,735,489 $4,477,116 ========== ========== ==========
See accompanying notes to consolidated condensed financial statements. (Continued) 4 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of July 1, 1995, December 31, 1994 and June 30, 1994 ($ and shares in thousands, except per share data)
July 1, December 31, June 30, 1995 1994 1994 (Unaudited) (Unaudited) ---------- ---------- ---------- LIABILITIES Current Liabilities: Accounts payable $ 672,954 $ 660,691 $ 626,081 Accrued expenses 440,350 659,502 416,276 Notes payable 805,000 200,000 529,100 Federal income taxes payable -- 102,008 8,071 Other current liabilities 11,610 20,541 10,470 ---------- ---------- ---------- Total Current Liabilities 1,929,914 1,642,742 1,589,998 ---------- ---------- ---------- Long-term debt 331,229 331,340 341,661 Deferred income taxes 86,564 81,702 88,552 Other long-term liabilities 138,651 188,126 167,222 Minority interests in subsidiaries 73,887 108,644 75,423 REDEEMABLE PREFERRED STOCK Cumulative preferred stock, Series B, $4.00 dividend, par value $100, redeemable at par plus accrued dividends; authorized and issued 17 shares with 4 held in treasury as of July 1, 1995, December 31, 1994 and June 30, 1994 1,330 1,330 1,330
See accompanying notes to consolidated condensed financial statements. (Continued) 5 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS As of July 1, 1995, December 31, 1994 and June 30, 1994 ($ and shares in thousands, except per share data)
July 1, December 31, June 30, 1995 1994 1994 (Unaudited) (Unaudited) ----------- ----------- ----------- SHAREHOLDERS' EQUITY Preference stock, $1.00 par value, authorized 50,000 shares; Series One ESOP Convertible, liquidation value $53.45; 6,320 shares issued and outstanding at July 1, 1995, 6,379 at December 31, 1994 and 6,443 at June 30, 1994 $ 337,827 $ 340,948 $ 344,379 Guaranteed ESOP Obligation (321,096) (328,096) (328,570) Common stock, par value $1.00, authorized 300,000 shares; issued 111,545 at July 1, 1995, 111,454 at December 31, 1994 and 111,385 at June 30, 1994; outstanding, 104,948 at July 1, 1995, 105,642 at December 31, 1994 and 105,508 at June 30, 1994, net of shares held in treasury 111,545 111,454 111,385 Capital surplus 51,382 48,122 45,624 Retained earnings 2,419,110 2,494,383 2,327,043 Cumulative translation adjustment (1,661) (1,421) -- Common stock in treasury, at cost; 6,597 shares at July 1, 1995, 5,812 at December 31, 1994, and 5,877 at June 30, 1994 (307,232) (283,785) (286,931) ----------- ----------- ----------- Total Shareholders' Equity 2,289,875 2,381,605 2,212,930 ----------- ----------- ----------- Total Liabilities and Equity $ 4,851,450 $ 4,735,489 $ 4,477,116 =========== =========== ===========
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 ---------------------- July 1, June 30, 1995 1994 --------- --------- Net Cash Used in Operating Activities $(236,325) $(145,860) --------- --------- Cash Flows from Investing Activities: Additions to property, plant, equipment and leasehold improvements (149,640) (155,815) Proceeds from sale or disposal of assets 12,340 64,084 Acquisitions, net of cash (937) -- --------- --------- Net Cash Used in Investing Activities (138,237) (91,731) --------- --------- Cash Flows from Financing Activities: Increase in notes payable 605,000 439,100 Decrease in book overdrafts (99,168) (93,067) Dividends paid (131,295) (118,469) Repurchase of common stock (26,309) -- Decrease in long-term debt and obligations under capital leases (8,666) (2,046) Proceeds from issuance of common stock 671 1,954 Other (42) -- --------- --------- Net Cash Provided by Financing Activities 340,191 227,472 --------- --------- Net decrease in cash and cash equivalents (34,371) (10,119) Cash and cash equivalents at beginning of year 117,035 80,971 --------- --------- Cash and Cash Equivalents at End of Period $ 82,664 $ 70,852 ========= ========= See accompanying notes to consolidated condensed financial statements. 7 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company as of July 1, 1995 and June 30, 1994 and the results of operations for the second quarter and six month periods then ended and cash flows for the six month periods then ended. Because of the seasonality of the specialty retailing business, operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. 2. Certain reclassifications have been made to the consolidated condensed financial statements of prior periods to conform to the current period presentation. 3. Primary net earnings (loss) per share is computed by dividing consolidated net earnings, after deducting net preferred dividends on redeemable preferred stock and Series One ESOP Convertible Preference Stock ("ESOP Preference Stock"), by the weighted average number of common shares outstanding during the period. Fully diluted net earnings (loss) per share is computed based upon the assumed conversion of the ESOP Preference Stock into common stock. Consolidated net earnings utilized in the calculation is adjusted for the difference between the current dividend on the ESOP Preference Stock and the common stock, and for certain non-discretionary expenses based on net earnings. The conversion of the ESOP Preference Stock and adjustments described above are anti-dilutive and, therefore, fully diluted net earnings (loss) per share has not been presented. 4. The components of net interest expense were as follows: Second Quarter Ended Six Months Ended --------------------- --------------------- July 1, June 30, July 1, June 30, 1995 1994 1995 1994 -------- -------- -------- -------- ($ in thousands) ---------------- Interest expense $ 12,941 $ 5,704 $ 21,691 $ 10,029 Interest income (135) (160) (270) (337) Capitalized interest (71) (139) (72) (191) -------- -------- -------- -------- Interest expense, net $ 12,735 $ 5,405 $ 21,349 $ 9,501 ======== ======== ======== ======== 5. During the six months ended July 1, 1995 and June 30, 1994, the Company had the following non-cash financing and investing activities: ($ in thousands) 1995 1994 ---------------- ---- ---- Performance share and restricted stock awards $ 2,193 $ 1,558 ======= ======= 8 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the Second Quarter Ended July 1, 1995 and June 30, 1994 Consolidated net sales for the quarter ended July 1, 1995 were $2.77 billion, an increase of 10.5% over consolidated net sales of $2.51 billion for the quarter ended June 30, 1994. Same store sales increased 1.7% over the prior year's period compared to an increase of 1.9% in 1994. Operating results for the quarter included the Palm and Easter Sunday selling periods, which occurred in the second quarter of 1995 as compared to the first quarter of 1994. In addition, the current year's accounting period had two additional selling days than the prior year's quarter, which ended on June 30, 1994. For the second quarter of 1995, the Company reported consolidated net earnings of $31.1 million compared to consolidated net earnings of $45.6 million for the second quarter of 1994. Consolidated net earnings per share was $0.25 for the current year period as compared to $0.39 per share last year. For the quarter ended July 1, 1995, net sales for the prescription drugs, health and beauty care segment increased 17.6% from the prior year period while same store sales increased 11.1%, as compared to an increase of 4.0% in 1994. Sales in both front store and pharmacy businesses were very strong, reflecting strong seasonal events and increased average prescription sales. Gross margin as a percentage of net sales for this segment declined for the quarter, reflecting the impact of the proportionate increase in the lower margined pharmacy business. This segment's share of consolidated net sales in the second quarter of 1995 and 1994 was 43.4% and 40.8%, respectively. Net sales for the apparel segment decreased 0.9% in the second quarter of 1995 compared to the prior year period. Same store sales decreased 11.6% compared to an increase of 0.2% in 1994, reflecting the disappointing results at Marshalls, which continued to be adversely affected by competition in the apparel industry. Same store sales at Wilsons improved, however, due to successful promotions and strong sales of its accessories line. Higher markdowns taken in this segment as compared to last year, especially at Marshalls in response to the sales shortfall, resulted in a decrease in gross margin as a percentage of net sales. For the second quarter of 1995, this segment represented 27.7% of consolidated net sales as compared to 30.9% in the same period last year. Net sales for the footwear segment increased by 7.8% for the quarter ended July 1, 1995 compared to the same period in 1994. This segment, which was favorably impacted by the timing of the Easter holiday, reported a 1.8% increase in same store sales during the second quarter of 1995 as compared to a 0.7% decrease for the comparable prior year period. Positive sales growth was reported at Footaction due to the popularity of several new athletic shoe styles and the growth of its superstores. Meldisco, however, experienced a decline in same store sales caused by unseasonable weather and increased competition. Gross margin as a percentage of net sales declined as a result of higher markdowns recorded at all divisions in this segment. For the second quarter of 1995, this segment represented 17.3% of consolidated net sales, compared to 17.7% for the second quarter of 1994. (Continued) 9 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales in the toys and home furnishings segment increased 20.7% in the second quarter of 1995 as compared to the prior year period. Same store sales increased 4.4% for the quarter compared to an increase of 2.8% in the second quarter of last year. Sales growth in this segment occurred principally due to strong video software and special value sales at Kay-Bee and continued expansion at Linens 'n Things. Gross margin as a percentage of net sales declined from the prior year due to aggressive pricing at Kay-Bee and a shift in sales mix throughout the segment. This segment's net sales for the second quarter of 1995 represented 11.6% of the consolidated total as compared to 10.6% in 1994. Cost of goods sold, buying and warehousing costs as a percentage of consolidated net sales was 65.5% in the second quarter of 1995, compared to 64.0% in 1994. The increase resulted primarily from a change in sales mix toward lower margined categories and higher markdowns, principally in the Company's apparel and footwear businesses. Store operating, selling, general and administrative expenses were 29.4% of consolidated net sales for the second quarter of 1995 compared to 30.4% in the prior year quarter. The decrease was due to stringent management of expenses and increased sales, in part resulting from the shift in the holiday calendar, which enabled the Company to leverage its fixed costs. Depreciation and amortization expense as a percentage of consolidated net sales was 2.1% for the second quarter of both 1995 and 1994. Net interest expense totalled $12.7 million for the second quarter of 1995 as compared to $5.4 million in the second quarter of 1994. The increase in 1995 reflected significantly higher short-term borrowing rates, as well as increased average short-term borrowings, resulting from higher stock levels maintained and lower earnings. Minority interests in net earnings for the second quarter of 1995 were 0.5% of consolidated net sales versus 0.6% in the second quarter of 1994 and are based on the profitability of the related operations. The Company's effective tax rate for the quarter was 34.1%, compared to 27.5% in the second quarter of 1994. The higher effective tax rate in 1995 is due to the relative mix of our businesses and the incomparability of earnings between the two periods. For the Six Months Ended July 1, 1995 and June 30, 1994 For the six month period ended July 1, 1995, which had one more selling day than the corresponding period in 1994, consolidated net sales were $5.26 billion, an increase of 7.7% over consolidated net sales of $4.89 billion for the six months ended June 30, 1994. Same store sales increased 1.1% over the prior year's period compared to an increase of 3.5% in 1994. For the first six months of 1995, the Company reported consolidated net earnings of $4.6 million compared to consolidated net earnings of $43.1 million for the 1994 period. On a per share basis, after deducting dividends on the ESOP Preference Stock, the Company reported a consolidated net loss of $0.04 for the current year versus net earnings per share of $0.33 for 1994. For the six months ended July 1, 1995, net sales for the prescription drugs, health and beauty care segment increased 13.5% over the prior year period while same store sales increased 9.2%, as compared to an increase of 5.5% in 1994. Sales in 1995 reflected strong sales both in the pharmacy department and in front store categories, which have benefitted from increased private label offerings and enhanced inventory management. Gross margin as a percentage of net sales for the segment declined due to an increase in the proportion of lower margined prescription sales to total sales. This segment's share of consolidated net sales in the first six months of 1995 and 1994 was 44.3% and 42.0%, respectively. (continued) 10 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the apparel segment decreased 1.0% in the first six months of 1995 compared to the prior year period. Same store sales decreased 9.4% compared to an increase of 1.5% in 1994. Marshall's year to date performance reflects the overall weakness in the off-price sector and the increased competition in the apparel marketplace. Wilsons, however, experienced very positive results, primarily in its accessories lines. Bob's sales increased due to the rapid expansion of the chain. Gross margin for the segment as a percentage of net sales decreased due to higher markdowns at all three businesses in the segment, offset by increased initial markon at Wilsons, related to its accessories lines, and lower buying and warehousing costs at Marshalls. For the first half of 1995, this segment represented 27.6% of consolidated net sales as compared to 30.0% in the same period last year. The footwear segment experienced an increase in net sales of 2.6% for the six months ended July 1, 1995 compared to the same period in 1994. This segment reported a 1.7% decrease in same store sales during the first six months of 1995 as compared to a 1.0% increase for the comparable prior year period. Net sales for the segment were driven by very favorable results at Footaction, which reported strong sales growth in each of its departmental lines. Meldisco, however, was impacted by the Kmart store closings and the expansion of its competitors. Gross margin as a percentage of net sales was impacted by higher markdowns at Meldisco and Thom McAn in response to sluggish sales, offset by lower markdowns at Footaction. For the six month period of 1995, this segment represented 16.1% of consolidated net sales, compared to 16.9% for the first six months of 1994. Net sales in the toys and home furnishings segment increased 16.6% in the first six months of 1995 as compared to the prior year period. Same store sales increased 2.5% for the first half of 1995 compared to an increase of 4.6% in the first six months of last year. Segment results were positively impacted by sales of video software and special value lines at Kay-Bee. Linens 'n Things continued to yield strong sales growth from the increase in its superstore base and the continued expansion of its product offerings. Gross margin as a percentage of net sales declined from the prior year due to higher markdowns at Kay-Bee and Linens 'n Things, as well as changes in product mix at all three divisions in the segment. This segment's net sales for the first half of 1995 represented 12.0% of the consolidated total as compared to 11.1% in 1994. Cost of goods sold, buying and warehousing costs as a percentage of consolidated net sales was 66.6% in the first six months of 1995, compared to 65.1% in 1994. The increase resulted primarily from a change in sales mix toward lower margined categories and higher markdowns, principally in the Company's apparel and footwear businesses. Store operating, selling, general and administrative expenses were 30.3% of consolidated net sales for the first six months of 1995 compared to 30.8% in the same period last year. The achievement of this favorable variance was due to more stringent management of variable expenses and leveraging of fixed costs due to the higher sales at many divisions. Depreciation and amortization expense as a percentage of consolidated net sales was 2.2% for the first six months of 1995 as compared to 2.1% in the 1994 period, reflecting the recent remodelings and expansions of our store formats, as well as sales declines at certain footwear and apparel divisions. Net interest expense totalled $21.3 million for the first six months of 1995 as compared to $9.5 million in the first six months of 1994. The increase in 1995 reflected significantly higher short-term borrowing rates, as well as increased average short-term borrowings, resulting from higher stock levels maintained and lower earnings. Minority interests in net earnings were 0.3% of consolidated net sales for the first six months of 1995 versus 0.4% in the second quarter of 1994 and are based on the profitability of the related operations. The Company's effective tax rate for the six months was 16.0%, compared to 27.6% in the first six months of 1994. The lower effective tax rate in 1995 is due to the relative mix of the Company's businesses and lower earnings. (continued) 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition and Liquidity Inherent in the seasonality of the specialty retailing business are cyclical buildups of inventory prior to peak selling periods, the most significant of which are Christmas, Palm and Easter Sundays, and Back-to-School. Although the Company finances its growth in operations and working capital requirements primarily through internally generated funds, short-term borrowings are also used to finance these seasonal inventory buildups. The short-term borrowings reach a peak in the Fall with the inventory buildup in anticipation of the Christmas selling season. For the six months ended July 1, 1995, cash and cash equivalents decreased $34.4 million to $82.7 million as compared to a decrease of $10.1 million to $70.9 million for the first six months of 1994. The Company had short-term borrowings of $805.0 million outstanding at July 1, 1995 and $529.1 million at June 30, 1994. The increase in the level of short-term borrowings in 1995 was due primarily to the maintenance of higher inventories for new stores and an expansion to larger store formats at several divisions, as well as lower earnings, the timing of dividend payments and the repurchase of common stock during the period. Net accounts receivable decreased by $37.2 million to $192.6 million for the six months ended July 1, 1995 as compared to a decrease of $26.2 million to $217.8 million for the six months ended June 30, 1994. The lower accounts receivable balance in 1995 reflected the improvement in verification of third party receivables at CVS and more timely collection of other receivables, as well as the timing of payments from licensors. For the six months ended July 1, 1995, inventories increased $146.5 million to $2.3 billion. For the six months ended June 30, 1994, inventories increased $236.1 million to $2.1 billion. The larger inventory balance in 1995 is due to increased purchases in response to the favorable sales trend at CVS, and the higher stock levels required for the Company's larger store formats, as well as lower LIFO reserves. Prepaid expenses increased $4.8 million in the first six months of 1995 as compared to a decrease of $9.7 million in 1994. The increase in 1995 is due mostly to higher levels of prepaid interest related to increased commercial paper borrowings. The decrease in 1994 was due primarily to decreased deferred taxes related to the utilization of reserves established in connection with the strategic realignment charge recorded in the fourth quarter of 1992. The decrease in accounts payable and accrued expenses was $206.9 million for the six months ended July 1, 1995, as compared to a decrease of $75.4 million in 1994. The larger decrease in 1995 was primarily due to the timing of payments, particularly for dividends on ESOP Preference stock. The larger balance in 1995 reflected a higher accounts payable balance due to increased inventory levels, as well as higher accruals due to timing of payments. Capital additions of $149.6 million and $155.8 million in the first six months of 1995 and 1994, respectively, represented expenditures primarily for improvements to new and existing leased store locations, store equipment, information systems and distribution and office facilities. 12 REVIEW BY INDEPENDENT AUDITORS The July 1, 1995 and June 30, 1994 consolidated condensed financial statements included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick LLP, independent auditors, in accordance with established professional standards and procedures for such a limited review. The report of KPMG Peat Marwick LLP, commenting on their review, is included herein as Part I - Exhibit 1. 13 Part 1 - Exhibit 1 Independent Auditors' Review Report The Board of Directors and Shareholders of Melville Corporation: We have reviewed the consolidated condensed balance sheets of Melville Corporation and subsidiary companies as of July 1, 1995 and June 30, 1994, and the related consolidated condensed statements of earnings for the second quarter and six month periods ended July 1, 1995 and June 30, 1994 and the related consolidated condensed statements of cash flows for the six month periods ended July 1, 1995 and June 30, 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with general accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Melville Corporation and subsidiary companies as of December 31, 1994 and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 16, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1994, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/KPMG Peat Marwick LLP New York, New York July 25, 1995 14 Part II. - OTHER INFORMATION Item 4 - Results of Votes of Security Holders On April 11, 1995, the Company held its annual meeting of shareholders. There was no solicitation in opposition to management's nominees for directors as listed in the proxy statement and all such nominees were elected. Of the 98,278,319 shares voted, at least 87,993,200 shares voted for each of these directors. The proposed amendments to the Company's Omnibus Stock Incentive Plan set forth in the proxy statement were approved by the shareholders with 72,462,668 shares voting for such proposal, 24,139,110 voting against and 1,676,541 shares abstaining. The shareholder proposal described in the proxy statement was defeated by the shareholders with 45,575,681 shares voting against such proposal, 44,295,555 voting for, 4,512,804 shares abstaining and 3,894,279 broker non-votes. Item 6 - Exhibits and Reports on Form 8-K a) EXHIBIT INDEX Exhibit ------- 11 Computation of Per Share Earnings 15 Letter re: Unaudited Interim Financial Information 27 Financial Data Schedules b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended July 1, 1995. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MELVILLE CORPORATION -------------------- (REGISTRANT) /S/ GARY L. CRITTENDEN ------------------------------- Gary L. Crittenden Senior Vice President and Chief Financial Officer Date: August 11, 1995 15 EX-11 2 EXHIBIT 11 Exhibit 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF PER SHARE EARNINGS ($ and shares in thousands, except per share data) Second Quarter Second Quarter Ended Ended July 1, 1995 June 30, 1994 ------------ ------------- PRIMARY EARNINGS PER COMMON SHARE: Net earnings $ 31,082 $ 45,602 Less: Preferred dividends, net 4,328 4,319 --------- --------- Net earnings used to calculate primary earnings per share $ 26,754 $ 41,283 ========= ========= Weighted average number of shares outstanding 104,892 105,447 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 46 103 --------- --------- Weighted average number of shares used to compute primary earnings per share 104,938 105,550 ========= ========= Primary earnings per share $ 0.25 $ 0.39 ========= ========= FULLY DILUTED EARNINGS PER COMMON SHARE: Net earnings $ 31,082 $ 45,602 Less: Preferred dividends 13 13 --------- --------- Net earnings used to calculate fully diluted earnings per share, before adjustments 31,069 45,589 Less: Adjustments resulting principally from the assumed conversion of the Series One ESOP Convertible Preference Stock, net of tax benefit 880 1,080 --------- --------- Net earnings used to calculate fully diluted earnings per share $ 30,189 $ 44,509 ========= ========= Weighted average number of shares outstanding 104,892 105,447 Add: Weighted average shares of Series One Convertible Preference Stock assuming conversion 7,207 6,965 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 45 104 Add: Weighted average number of shares which could have been issued upon conversion of 4 7/8% debentures 3 6 --------- --------- Weighted average number of shares used to compute fully diluted earnings per share 112,147 112,522 ========= ========= Fully diluted earnings per share $ 0.27 $ 0.40 ========= ========= Exhibit 11 MELVILLE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF PER SHARE EARNINGS ($ and shares in thousands, except per share data) Six Months Six Months Ended Ended July 1, 1995 June 30, 1994 ------------ ------------- PRIMARY (LOSS)/EARNINGS PER COMMON SHARE: Net earnings $ 4,634 $ 43,097 Less: Preferred dividends, net 8,656 8,639 --------- --------- Net (loss)/earnings used to calculate primary (loss)/earnings per share ($ 4,022) $ 34,458 ========= ========= Weighted average number of shares outstanding 105,083 105,404 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 26 100 --------- --------- Weighted average number of shares used to compute primary (loss)/earnings per share 105,109 105,504 ========= ========= Primary (loss)/earnings per share ($ 0.04) $ 0.33 ========= ========= FULLY DILUTED EARNINGS PER COMMON SHARE: Net earnings $ 4,634 $ 43,097 Less: Preferred dividends 27 27 --------- --------- Net earnings used to calculate fully diluted earnings per share, before adjustments 4,607 43,070 Less: Adjustments resulting principally from the assumed conversion of the Series One ESOP Convertible Preference Stock, net of tax benefit 2,455 2,739 --------- --------- Net earnings used to calculate fully diluted earnings per share $ 2,152 $ 40,331 ========= ========= Weighted average number of shares outstanding 105,083 105,404 Add: Weighted average shares of Series One Convertible Preference Stock assuming conversion 7,208 6,965 Add: Weighted average number of shares which could have been issued upon exercise of outstanding options 27 103 Add: Weighted average number of shares which could have been issued upon conversion of 4 7/8% debentures 3 6 --------- --------- Weighted average number of shares used to compute fully diluted earnings per share 112,321 112,478 ========= ========= Fully diluted earnings per share $ 0.02 $ 0.36 ========= ========= EX-15 3 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 Number 33-34946 on Form S-3 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 25, 1995 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. Very truly yours, /S/KPMG Peat Marwick LLP New York, New York August 11, 1995 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-30-1995 JUL-01-1995 82,664 0 206,536 13,914 2,284,788 2,730,290 2,331,499 765,505 4,851,450 1,929,914 331,229 111,545 1,330 0 2,178,330 4,851,450 5,262,208 5,262,208 3,503,093 3,503,093 1,712,858 0 21,349 24,908 3,974 4,634 0 0 0 4,634 (0.04) 0