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 September 30, 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 October 28, 1995
----- -------------------------------
Common Stock, $1 par value 105,088,276
INDEX
Part I. -- Financial Information Page No.
Consolidated Condensed Statements of Operations--
Third Quarter and Nine Months Ended
September 30, 1995 and October 1, 1994 3
Consolidated Condensed Balance Sheets--
As of September 30, 1995, December 31, 1994 and
October 1, 1994 4 - 6
Consolidated Condensed Statements of Cash Flows--
Nine Months Ended September 30, 1995 and
October 1, 1994 7
Notes to Consolidated Condensed Financial Statements 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
Review by Independent Auditors 14
Exhibit I -- Report of Review by Independent Auditors 15
Part II. -- Other Information 16
2
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
($ and shares in thousands, except per share data)
Third Quarter Ended Nine Months Ended
---------------------------- ---------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------- ----------- ------------- ----------
Net sales $2,814,011 $2,737,016 $8,076,219 $7,624,325
Cost of goods sold, buying
and warehousing costs 1,871,162 1,770,244 5,374,255 4,954,104
---------- ---------- ---------- ----------
942,849 966,772 2,701,964 2,670,221
---------- ---------- ---------- ----------
Store operating, selling, general
and administrative expenses 859,886 809,743 2,456,236 2,313,842
Depreciation and amortization 62,948 53,898 179,456 157,392
---------- ---------- ---------- ----------
922,834 863,641 2,635,692 2,471,234
---------- ---------- ---------- ----------
Operating profit 20,015 103,131 66,272 198,987
Interest expense, net 16,882 10,018 38,231 19,519
---------- ---------- ---------- ----------
Earnings before income taxes
and minority interests 3,133 93,113 28,041 179,468
Income tax (benefit) provision (1,352) 28,650 2,622 52,523
---------- ---------- ---------- ----------
Earnings before minority interests 4,485 64,463 25,419 126,945
Minority interests in net earnings 6,965 12,745 23,265 32,130
---------- ---------- ---------- ----------
Net (loss) earnings $ (2,480) $ 51,718 $ 2,154 $ 94,815
========== ========== ========== ==========
Net (loss) earnings per share of common stock $ (0.06) $ 0.45 $ (0.10) $ 0.78
========== ========== ========== ==========
Dividends per share of common stock $ 0.38 $ 0.38 $ 1.14 $ 1.14
========== ========== ========== ==========
Weighted average common shares outstanding 105,035 105,527 105,077 105,443
========== ========== ========== ==========
See accompanying notes to consolidated condensed financial statements.
3
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of September 30, 1995, December 31, 1994 and October 1, 1994
($ in thousands)
September 30, December 31, October 1,
1995 1994 1994
(Unaudited) (Unaudited)
------------ --------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 80,062 $ 117,035 $ 82,886
Accounts receivable (net of allowance
for doubtful accounts of $14,301 at
September 30, 1995, $18,858 at
December 31, 1994 and $20,631 at
October 1, 1994) 232,623 229,833 253,577
Inventories:
Finished goods 2,568,467 2,131,041 2,404,444
Work-in-process 2,394 645 712
Raw materials and supplies 13,367 6,557 9,326
---------- ---------- ----------
Total inventories 2,584,228 2,138,243 2,414,482
Prepaid expenses 170,419 165,388 193,549
---------- ---------- ----------
Total Current Assets 3,067,332 2,650,499 2,944,494
---------- ---------- ----------
Property, plant, equipment, leasehold
improvements and leased property under capital
leases, at cost 2,449,256 2,231,841 2,135,423
Less accumulated depreciation and
amortization 815,117 704,919 705,445
---------- ---------- ----------
Net property, plant, equipment, leasehold
improvements and leased property
under capital leases 1,634,139 1,526,922 1,429,978
---------- ---------- ----------
Goodwill (net of accumulated amortization
of $105,563 at September 30, 1995,
$94,987 at December 31, 1994
and $91,497 at October 1, 1994) 438,404 448,427 448,156
Deferred charges and other assets 114,904 109,641 108,558
---------- ---------- ----------
Total Assets $5,254,779 $4,735,489 $4,931,186
========== ========== ==========
See accompanying notes to consolidated condensed financial statements.
(Continued)
4
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of September 30, 1995, December 31, 1994 and
October 1, 1994 ($ and shares in thousands,
except per share data)
September 30, December 31, October 1,
1995 1994 1994
(Unaudited) (Unaudited)
------------- ----------- ------------
LIABILITIES
Current Liabilities:
Accounts payable $ 875,391 $ 660,691 $ 780,630
Accrued expenses 542,891 659,502 459,052
Notes payable 940,000 200,000 749,932
Federal income taxes payable -- 102,008 21,850
Other current liabilities 8,945 20,541 10,685
---------- ---------- ----------
Total Current Liabilities 2,367,227 1,642,742 2,022,149
---------- ---------- ----------
Long-term debt 332,056 331,340 341,589
Deferred income taxes 87,395 81,702 90,621
Other long-term liabilities 136,997 188,126 161,936
Minority interests in subsidiaries 79,851 108,644 88,398
REDEEMABLE PREFERRED STOCK
Cumulative preferred stock, Series B,
$4.00 dividend, par value $100, redeemable
at par plus accrued dividends; authorized
and issued 17 shares with 4 held
in treasury 1,330 1,330 1,330
See accompanying notes to consolidated condensed financial statements.
(Continued)
5
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
As of September 30, 1995, December 31,
1994 and October 1, 1994 ($ and shares
in thousands, except per share data)
September 30, December 31, October 1,
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; 6,294 shares issued and
outstanding at September 30, 1995,
6,379 at December 31, 1994 and
6,408 at October 1, 1994 $ 336,424 $ 340,948 $ 342,507
Guaranteed ESOP Obligation (321,096) (328,096) (328,570)
Common stock, par value $1.00, authorized
300,000 shares; issued 111,646 at
September 30, 1995, 111,454 at
December 31, 1994 and 111,402 at October 1,
1994; outstanding, 105,076 at September 30,
1995, 105,642 at December 31, 1994
and 105,561 at October 1, 1994,
net of shares held in treasury 111,646 111,454 111,402
Capital surplus 54,708 48,122 46,272
Retained earnings 2,376,491 2,494,383 2,338,767
Cumulative translation adjustment (2,305) (1,421) --
Common stock in treasury, at cost;
6,570 shares at September 30,
1995, 5,812 at December 31,
1994, and 5,842 at October 1, 1994 (305,945) (283,785) (285,215)
---------- ---------- ----------
Total Shareholders' Equity 2,249,923 2,381,605 2,225,163
---------- ---------- ----------
Total Liabilities and Equity $5,254,779 $4,735,489 $4,931,186
========== ========== ==========
See accompanying notes to consolidated condensed financial statements.
6
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
Nine Months Ended
September 30, October 1,
1995 1994
------------- ----------
Net Cash Used in Operating Activities $(260,881) $(207,663)
---------- ---------
Cash Flows from Investing Activities:
Additions to property, plant, equipment
and leasehold improvements (277,016) (268,619)
Proceeds from sale or disposal of assets 17,718 73,529
Acquisitions, net of cash (4,809) (28,224)
--------- ---------
Net Cash Used in Investing Activities (264,107) (223,314)
--------- ---------
Cash Flows from Financing Activities:
Increase in notes payable 740,000 659,932
Decrease in book overdrafts (47,203) (68,122)
Dividends paid (172,229) (158,462)
Repurchase of common stock (26,309) --
Decrease in long-term debt and obligations under
capital leases (6,026) (2,940)
Proceeds from issuance of common stock 671 2,488
Effect of currency fluctuation (889) (4)
--------- ---------
Net Cash Provided by Financing Activities 488,015 432,892
--------- ---------
Net (decrease) increase in cash and cash equivalents (36,973) 1,915
Cash and cash equivalents at beginning of year 117,035 80,971
--------- ---------
Cash and Cash Equivalents at End of Period $ 80,062 $ 82,886
========= =========
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 September 30, 1995 and October 1, 1994 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 net earnings (loss) per share is computed by dividing consolidated
net earnings (loss), after deducting net preferred dividends on redeemable
preferred stock and Series One ESOP Convertible Preference Stock ("ESOP
Preference Stock"), by the weighted average number of common shares
outstanding during the period.
Fully diluted net earnings (loss) per share is computed based upon the
assumed conversion of the ESOP Preference Stock into common stock.
Consolidated net earnings (loss) utilized in the calculation is adjusted
for the difference between the current dividend on the ESOP Preference
Stock and the common stock, and for certain non-discretionary expenses
based on net earnings. The conversion of the ESOP Preference Stock and
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:
Third Quarter Ended Nine Months Ended
---------------------- ------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
---- ---- ---- ----
($ in thousands)
Interest expense $ 17,187 $ 10,570 $ 38,878 $ 20,599
Interest income (239) (494) (509) (831)
Capitalized interest (66) (58) (138) (249)
-------- -------- -------- --------
Interest expense, net $ 16,882 $ 10,018 $ 38,231 $ 19,519
======== ======== ======== ========
5. During the nine months ended September 30, 1995 and October 1, 1994, the
Company had the following non-cash financing and investing activities:
($ in thousands) 1995 1994
---- ----
Performance share and restricted stock awards $ 6,296 $ 1,558
========= =========
Fair value of assets acquired $ 4,809 $32,554
Cash paid 4,809 28,224
--------- --------
Liabilities assumed -- $ 4,330
========= ========
6. On October 14, 1995, the Company entered into an agreement to sell its
Marshalls division to The TJX Companies, Inc. for aggregate proceeds of
$550 million, consisting of $375 million in cash and $175 million in TJX
convertible preferred stock. The transaction is subject to certain
conditions and approvals and is expected to close in the fourth quarter of
1995, at which time the Company will record an after-tax charge of
approximately $195 million.
(Continued)
8
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
7. On October 24, 1995, the Company announced a comprehensive strategic
restructuring program, the primary components of which are the creation of
three independent, publicly traded retailing companies in the chain drug,
footwear and toy industries; the sale of the Wilsons and This End Up
divisions; the closure of approximately 330 stores and several warehouses;
the consolidation of certain functions of Meldisco, Footaction and Thom
McAn, and the reduction of Melville's corporate overhead. Additionally,
the Company has elected to adopt Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and will change its method of
accounting for internally developed software costs. These actions will
result in a fourth quarter after-tax charge of approximately $585 million,
in addition to the after tax charge of $195 million related to the sale of
Marshalls.
The Company intends to create the three independent retailing companies by
spinning off its footwear businesses and Kay-Bee to current Melville
shareholders by the end of 1996, while the chain drug holding company will
include CVS, and, at least initially, Linens 'n Things and Bob's. The
Company plans to pursue the sales of the Wilsons and This End Up chains
during 1996.
9
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 September 30, 1995 and October 1, 1994
Consolidated net sales for the third quarter ended September 30, 1995,
which included two fewer selling days than the prior year quarter, were $2.81
billion, an increase of 2.8% over consolidated net sales of $2.74 billion for
the quarter ended October 1, 1994. Same store sales were flat with the prior
year's period, compared to an increase of 2.8% in 1994.
For the third quarter of 1995, the Company reported a consolidated net
loss of $2.5 million, compared to consolidated net earnings of $51.7 million for
the third quarter of 1994. The consolidated net loss per share was $0.06 for the
current year period as compared to consolidated net earnings per share of $0.45
for last year.
For the quarter ended September 30, 1995, net sales for the
prescription drugs, health and beauty care segment increased 10.3% from the
prior year period while same store sales increased 9.2%, as compared to an
increase of 5.5% in 1994. Strong Back-to-School business, as well as other
promotions during the quarter, resulted in favorable front store sales, while
the continued increase in the average prescription price and prescription counts
resulted in strong sales in the pharmacy business. 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 third quarter of 1995 and 1994
was 41.6% and 38.8%, respectively.
Net sales for the apparel segment decreased 1.9% in the third quarter
of 1995 compared to the prior year period. Same store sales decreased 7.3%
compared to a decrease of 3.8% in 1994, reflecting disappointing results at all
three divisions within the segment due to the continued impact of competition in
the apparel industry, and the implementation of a more stringent layaway policy
at Wilsons. Higher markdowns at Marshalls and Bob's, as well as a sharper
pricing strategy at Marshalls, offset the higher gross margin rate at Wilsons,
which resulted from strong sales of its accessories lines. For the third quarter
of 1995, this segment represented 29.3% of consolidated net sales as compared to
30.7% in the same period last year.
Net sales for the footwear segment decreased by 5.7% for the quarter
ended September 30, 1995 compared to the same period in 1994. This segment
reported a 4.5% decrease in same store sales during the third quarter of 1995 as
compared to a 3.7% increase 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 and Thom McAn; however,
experienced negative same store sales due to competitive and promotional factors
in the footwear business, as well as poor Back-to-School sales. Gross margin as
a percentage of net sales declined for the quarter due to higher markdowns at
Meldisco. Both Footaction and Thom McAn posted favorable gross margin rates due
to tight control of markdowns and higher initial markon. For the third quarter
of 1995, this segment represented 16.4% of consolidated net sales, compared to
17.9% for the third quarter of 1994.
(Continued)
10
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 3.4% in
the third quarter of 1995 from the prior year period. Same store sales decreased
4.9% for the quarter compared to an increase of 11.2% in the third quarter of
last year. Kay-Bee's results were negatively impacted by disappointing sales
related to summer movie releases, while Linens 'n Things' comparable store sales
reflected increased competition in key markets. Gross margin as a percentage of
net sales declined from the prior year due to higher markdowns at Kay-Bee, in an
effort to stimulate sales, as well as at This End Up, due to an increase in its
lower margined institutional sales. This segment's net sales for the third
quarter of 1995 represented 12.7% of the consolidated total as compared to 12.6%
in 1994.
Cost of goods sold, buying and warehousing costs as a percentage of
consolidated net sales were 66.5% in the third quarter of 1995, compared to
64.7% in 1994. The increase resulted primarily from a change in the sales mix
toward lower margined categories, the change in Marshalls' pricing and higher
markdowns.
Store operating, selling, general and administrative expenses were
30.6% of consolidated net sales for the third quarter of 1995 compared to 29.6%
in the prior year quarter. The increase was due to higher occupancy expense, in
part due to the larger store formats at some of the divisions. Depreciation and
amortization expense as a percentage of consolidated net sales was 2.2% and 2.0%
for the third quarter of 1995 and 1994, respectively, due to the lack of
leverage resulting from the sales shortfall, especially at Marshalls.
Net interest expense totalled $16.9 million for the third quarter of
1995 as compared to $10.0 million in the third quarter of 1994. The increase in
1995 reflected significantly higher short-term borrowing rates, as well as
increased short-term borrowings, primarily resulting from higher stock levels
maintained and lower earnings.
Minority interests in net earnings for the third quarter of 1995 were
0.2% of consolidated net sales versus 0.5% in the third quarter of 1994 and are
based on the profitability of the related operations.
The Company's effective tax rate for the third quarter reflects the
shift in proportionate profitability between those subsidiaries included in the
consolidated Federal tax return and those subsidiaries for which separate
returns are filed.
For the Nine Months Ended September 30, 1995 and October 1, 1994
For the nine month period ended September 30, 1995, which had one less
selling day than the corresponding period in 1994, consolidated net sales were
$8.08 billion, an increase of 5.9% over consolidated net sales of $7.62 billion
for the nine months ended October 1, 1994. Same store sales increased 0.7% over
the prior year's period compared to an increase of 3.2% in 1994.
For the first nine months of 1995, the Company reported consolidated
net earnings of $2.2 million compared to consolidated net earnings of $94.8
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 $0.10
for the current year versus net earnings per share of $0.78 for 1994.
For the nine months ended September 30, 1995, net sales for the
prescription drugs, health and beauty care segment increased 12.4% over the
prior year period while same store sales increased 9.2%, as compared to an
increase of 5.5% in 1994. Year to date sales in 1995 benefitted from strong
promotional and pharmacy business sales, which reflected increased average
prescription sales. 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 nine months of 1995 and 1994 was 43.3% and 40.9%, respectively.
(Continued)
11
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the apparel segment decreased 1.3% in the first nine
months of 1995 compared to the prior year period. Same store sales decreased
8.7% compared to a decrease of 0.5% in 1994. Year to date comparable store sales
were negative for all three chains in the segment due to increased competition
in the apparel business, and the implementation of a more stringent layaway
policy at Wilsons. Gross margin for the segment as a percentage of net sales
decreased due to higher markdowns and a lower pricing strategy at Marshalls,
partially offset by increased initial markon at Wilsons, related to its
accessories lines, and lower buying and warehousing costs at Marshalls. For the
first nine months of 1995, this segment represented 28.3% of consolidated net
sales as compared to 30.3% in 1994.
The footwear segment experienced a decrease in net sales of 0.5% for
the nine months ended September 30, 1995 compared to the same period in 1994.
This segment reported a 2.7% decrease in same store sales during the first nine
months of 1995 as compared to a 2.0% increase for the comparable prior year
period. Very favorable results at Footaction, due to strong sales of men's
athletic goods and branded apparel, were offset by a sales decline at Meldisco,
which was impacted by 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 due to an increase in promotional business and in
response to sluggish sales, offset by lower markdowns as a percentage of sales
at Footaction. For the nine month period of 1995, this segment represented 16.2%
of consolidated net sales, compared to 17.2% for the first nine months of 1994.
Net sales in the toys and home furnishings segment increased 11.5% in
the first nine months of 1995 as compared to the prior year period. Same store
sales, however, decreased 0.3% for the first nine months of 1995 compared to an
increase of 7.0% in the first nine months of last year. Kay-Bee's strong sales
of special value merchandise and video software offset the disappointing sales
related to summer movie related merchandise. Increased competition negatively
impacted Linens 'n Things' year to date same store sales, despite gains in every
department over last year. Gross margin as a percentage of net sales declined
from the prior year for all three divisions due to higher markdowns at Kay-Bee
and This End Up and higher freight costs at Linens 'n Things. This segment's net
sales for the first nine months of 1995 represented 12.2% of the consolidated
total as compared to 11.6% in 1994.
Cost of goods sold, buying and warehousing costs as a percentage of
consolidated net sales were 66.5% in the first nine months of 1995, compared to
65.0% in 1994. The increase resulted primarily from a change in the sales mix
toward lower margined categories, higher markdowns and lower initial markon at
Marshalls due to its repricing strategy to stimulate sales growth.
Store operating, selling, general and administrative expenses were
30.4% of consolidated net sales for the first nine months of 1995 compared to
30.3% in the same period last year. Occupancy expense rose in comparison to last
year due in part to the expansion into larger store formats, which offset
expense savings achieved in other categories.
Depreciation and amortization expense as a percentage of consolidated
net sales was 2.2% for the first nine months of 1995 as compared to 2.1% in the
1994 period, reflecting the recent remodelings and expansions of our store
formats.
Net interest expense totalled $38.2 million for the first nine months
of 1995 as compared to $19.5 million in the first nine months of 1994. The
increase in 1995 reflected significantly higher short-term borrowing rates, as
well as increased average short-term borrowings, primarily resulting from higher
stock levels maintained and lower earnings.
Minority interests in net earnings were 0.3% of consolidated net sales
for the first nine months of 1995 versus 0.4% for the first nine months of 1994
and are based on the profitability of the related operations.
The Company's effective tax rate for the first nine months of 1995 was
9.4%, compared to 29.3% in the first nine months of 1994. The lower effective
tax rate in 1995 is due to the shift in proportionate profitability between
those subsidiaries included in the consolidated Federal tax return and those
subsidiaries for which separate returns are filed.
(Continued)
12
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 nine months ended September 30, 1995, cash and cash equivalents
decreased $37.0 million to $80.1 million as compared to an increase of $1.9
million to $82.9 million for the first nine months of 1994. The Company had
short-term borrowings of $940.0 million outstanding at September 30, 1995 and
$749.9 million at October 1, 1994. The increase in the level of short-term
borrowings in 1995 was due primarily to lower earnings, the maintenance of
higher inventories for new stores and an expansion to larger store formats at
several divisions, the timing of dividend payments and the repurchase of common
stock during the period.
Net accounts receivable increased by $2.8 million to $232.6 million for
the nine months ended September 30, 1995 as compared to an increase of $9.6
million to $253.6 million for the nine months ended October 1, 1994. The lower
accounts receivable balance in 1995 reflected the improvement in verification of
third party receivables at CVS, lower layaway receivables due to the change in
the policy at Wilsons and more timely collection of other receivables.
For the nine months ended September 30, 1995, inventories increased
$446.0 million to $2.6 billion. For the nine months ended October 1, 1994,
inventories increased $555.7 million to $2.4 billion. The higher inventory
balance in 1995 is due to increased purchases in response to the favorable sales
trend at CVS, the higher stock levels required for the Company's larger store
formats and merchandising strategies.
Prepaid expenses increased $5.0 million in the first nine months of
1995 as compared to a decrease of $21.1 million in 1994. The increase in 1995 is
due mostly to the timing of payments, while 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 increase in accounts payable and accrued expenses was $98.1 million
for the nine months ended September 30, 1995, as compared to an increase of
$86.6 million in 1994. The larger increase in 1995 was primarily due to the
maintenance of higher inventory levels, as well as higher accruals due to timing
of payments.
Capital additions of $277.0 million and $268.6 million in the first
nine 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.
13
REVIEW BY INDEPENDENT AUDITORS
The September 30, 1995 and October 1, 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.
14
Part I -- 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 September 30, 1995 and October 1,
1994, and the related consolidated condensed statements of operations for the
third quarter and nine month periods ended September 30, 1995 and October 1,
1994 and the related consolidated condensed statements of cash flows for the
nine month periods ended September 30, 1995 and October 1, 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Melville Corporation and subsidiary
companies as of December 31, 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
October 24, 1995
15
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 September 30,
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: November 14, 1995
16