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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 12, 1996
MELVILLE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
New York 1-1011 04-1611460
(State or Other (Commission File Number) (IRS Employer
Jurisdiction Identification
of Incorporation) No.)
One CVS Drive
Woonsocket, RI 02895
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code:
(401) 765-1500
Not Applicable
(Former Name or Former Address, if Changed
Since Last Report)
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Item 2. Acquisitions or Dispositions of Assets.
Introduction
On October 12, 1996 (the "Distribution Date"), Melville Corporation
("Melville") effected the distribution (the "Distribution") of 100% of the
shares of common stock, par value $.01 per share (the "Footstar Common
Stock"), of Footstar, Inc., a Delaware corporation ("Footstar"), held by
Melville to holders of Melville's common stock, par value $1.00 per share
("Melville Common Stock"). Such shares of Footstar Common Stock represented
all of the Footstar Common Stock owned by Melville and were distributed by
Melville to its shareholders of record (other than Melville Restricted
Shareholders (as defined below)) as of the close of business on October 2,
1996 (the "Record Date") on the basis of 0.2879 shares of Footstar Common
Stock for every one share of Melville Common Stock held of record on the
Record Date. Holders ("Melville Restricted Shareholders") of restricted
shares of Melville Common Stock issued under Melville stock-based compensation
plans to Melville employees who remained Melville employees after the
Distribution did not receive Footstar Common Stock in respect of such
restricted stock in the Distribution and, in lieu thereof, an adjustment to
the applicable restricted stock award is being made pursuant to the terms
of such compensation plans whereby such employees will receive additional
Melville restricted stock equivalent to the Footstar Common Stock that
would otherwise have been received in the Distribution. No consideration
was paid to Melville or Footstar by Melville shareholders for the shares of
Footstar Common Stock received in the Distribution. Immediately following
the Distribution, Melville owned no shares of Footstar Common Stock or
other securities of Footstar.
Prior to the Distribution Date, Melville contributed to
Footstar all of the outstanding shares of capital stock of, or other ownership
interests in, the subsidiaries that own or operate the Meldisco and Footaction
businesses and the Thom McAn business which is being discontinued (the
"discontinued Thom McAn business") (except for Kmart Corporation's minority
interest in the Meldisco subsidiaries), in accordance with the terms of the
Distribution Agreement, entered into as of September 24, 1996, between
Melville and Footstar. As of the Distribution, Footstar owned the Meldisco,
Footaction and discontinued Thom McAn businesses.
The Footstar Common Stock has been approved for listing on the
New York Stock Exchange under the symbol "FTS" subject to official notice of
issuance.
Background to and Reasons for the Distribution
Melville had, up to the time of the Restructuring Program
described below, been a diversified retailer operating in four business
segments: prescription drugs and health and beauty care through its CVS
business; apparel through its Bob's Stores, its Marshalls business (up to the
time of the sale of Marshalls on November 17, 1995) and its Wilson's leather
goods chain (up to the time of the sale of Wilson's on May 25, 1996); footwear
through its Meldisco, Footaction and Thom McAn businesses; and toys through
its Kay-Bee business (up to the time of the sale of Kay-Bee on May 5, 1996)
and home furnishings through its Linens 'n Things and This End Up
businesses (up to the time of the sale of This End Up on May 31, 1996).
In Melville's letter to shareholders accompanying its 1994
Annual Report, Melville informed its shareholders that it was commencing a
strategic review of its organization and operations which it expected would be
substantially completed by December 31, 1995. In early 1994, Melville began to
explore various transaction structures, and this activity was accelerated in
late 1994 and throughout 1995. In the Spring of 1995, Melville retained
Morgan Stanley & Co. Incorporated ("Morgan Stanley") as financial adviser and
certain other advisers to assist in designing, formulating and implementing
Melville's restructuring strategy and plan (including Bain & Co., as a
management consultant, and Financo, Inc. as financial adviser in connection
with the sale of Kay-Bee and This End Up and, together with Morgan Stanley,
the sale of Marshalls). In this strategic review, Melville worked with its
advisers and legal counsel and accountants in an analysis and valuation of,
among other things, the financial, market, credit, tax, accounting and
regulatory implications of alternative transactions and structures, and
Melville and its advisers examined the mix of its businesses and the role and
strategy of each in generating sales and profits, as well as each business'
market position and growth potential.
These preparatory efforts of Melville's management and advisers
culminated in the formulation and announcement in October 1995 of Melville's
comprehensive strategic restructuring program (the "Restructuring Program")
designed to achieve various strategic, profitability and growth objectives as
well as cost savings, and thereby to increase value for Melville shareholders.
The Restructuring Program included:
(i) The planned creation of independent retailing companies in
the chain drug and footwear industries. After giving effect to the
Restructuring Program, the remaining Melville (which, subject to shareholder
approval, will be renamed CVS Corporation) will be a publicly traded holding
company consisting of CVS and, initially, Linens 'n Things and Bob's.
On June 3, 1996, Melville announced a formal plan to separate
Linens 'n Things and Bob's from CVS, with Linens 'n Things and Bob's to be
classified as discontinued operations in Melville's financial statements. On
September 18, 1996 a registration statement was filed under the Securities Act
of 1933 relating to a public offering of shares of common stock of Linens 'n
Things held by Melville. Melville has publicly announced its intention to
dispose of, subject to market conditions, its entire ownership position in
Linens 'n Things by the end of 1997. No assurance can be given as to when or
whether such public offering will be consummated, as to the number or offering
price of shares to be sold therein.
Footstar constitutes the footwear company which has become
publicly traded through the Distribution.
(ii) The previously announced sale of Marshalls to The TJX
Companies, Inc., which was completed on November 17, 1995.
(iii) The previously announced sale of Kay-Bee Toys to
Consolidated Stores Corporation, which was completed on May 5, 1996.
(iv) The previously announced sale of Wilson's to an investor
group led by Wilson's management and other investors, which was completed on
May 25, 1996; and the sale of This End Up to an outside investor group which
was completed on May 31, 1996.
(v) The recording by Melville of an after-tax charge of
approximately $753.1 million in the fourth quarter of 1995 relating to the
Restructuring Program. An additional after-tax charge of approximately $148
million was recorded by Melville in the second quarter of 1996, resulting
primarily from certain actions announced by Melville on June 3, 1996 regarding
discontinued operations.
(vi) A revision of Melville's dividend policy to align the
payout with the new Melville's growth and capital needs, as well as with the
prevailing practices in each industry segment. In January 1996, Melville
announced that its quarterly dividend would be reduced to $0.11 per share from
$0.38 per share.
As described above, the Distribution constituted part of the
overall Restructuring Program. Melville had considered various alternatives
with respect to the restructuring of the entire Melville portfolio of
businesses (including its footwear operations) and concluded that the
Distribution was in the best interests of Melville, Footstar and Melville's
shareholders.
In concluding that the Distribution was in the best interests
of Melville, Footstar and Melville's shareholders, Melville considered, among
other things, that (i) the Distribution positions Melville to take full
advantage of the strategic opportunities currently presented by the ongoing
drug store industry consolidation by creating two separate public companies
which the financial markets will evaluate more effectively; (ii) the
Distribution permits Melville and Footstar to offer management incentives in a
manner that is more directly linked to the performance of their respective
businesses, thereby better aligning these incentives with the interests of
shareholders; (iii) the Distribution increases the strategic clarity of
Melville and Footstar, as each will be focused on a specific industry and will
have the decision-making power to respond quickly and decisively to evolving
conditions in its industry; (iv) the Restructuring Program should increase
overall aggregate profitability of the newly independent companies as a result
of the cost savings achieved by removing functions that had been performed by
Melville which duplicated similar functions performed by the Meldisco and
Footaction businesses; and (v) for various corporate, strategic and
contractual reasons, Footstar could not, in management's view, have been
disposed of through a third party sale.
Certain Federal Income Tax Consequences
On January 9, 1996, Melville filed an application for a ruling
with the Internal Revenue Service (the "Service") to the effect that the
proposed Distribution would qualify as tax-free to Melville and its
shareholders. During the course of the Service's consideration of the
application, from time to time it requested additional information from
Melville. On August 29, 1996, the Service made another such request which
further extended the review process for an indeterminate period. Melville
believed that it was in the best interests of Melville, Footstar and
Melville's shareholders to effect the Distribution on or about October 12,
1996. Accordingly, Melville withdrew its application and proceeded with the
Distribution on the basis of an opinion of Davis Polk & Wardwell to the effect
that the Distribution should qualify as tax-free to Melville and its
shareholders under Sections 355 and 368 of the Internal Revenue Code of 1986,
as amended (the "Code").
Assuming that the Distribution qualifies as tax-free for
federal income tax purposes:
(i) Except as described below with respect to
fractional shares, a Melville shareholder will not recognize
gain or loss as a result of the Distribution. Cash received in
lieu of a fractional share will be treated as received in
exchange for such fractional share. Gain or loss will be
recognized to the recipient shareholder to the extent of the
difference between the shareholder's basis in the fractional
share and the amount received for the fractional share.
Provided the fractional share interest is held as a capital
asset by the recipient shareholder, such gain or loss will
constitute capital gain or loss.
(ii) A Melville shareholder will apportion its tax
basis for its Melville Common Stock between such Melville
Common Stock and Footstar Common Stock received in the
Distribution in proportion to the relative fair market
values of such Melville Common Stock and Footstar Common
Stock on the Distribution Date.
(iii) A Melville shareholder's holding period for
Footstar Common Stock received in the Distribution will include
the period during which such shareholder held the Melville
Common Stock with respect to which the Distribution was made,
provided that such Melville Common Stock was held as a capital
asset by such shareholder as of the Distribution Date.
(iv) Except to the extent of any excess loss accounts or
deferred intercompany gains, no gain or loss will be recognized
to Melville as a result of the Distribution.
Opinions of counsel are not binding on the Service or the
courts. The Service may challenge positions taken based upon this opinion.
Davis Polk & Wardwell, however, is of the opinion that if the Service were to
assert that the Distribution did not qualify as tax-free, the Service should
not prevail in a judicial proceeding in which the issues and facts were
properly presented.
If the Distribution does not qualify as a tax-free
distribution, the fair market value of the shares of Footstar Common Stock
received by the Melville stockholders would be taxable as a dividend. In that
event, the tax basis of the shares of Footstar Common Stock held by the
Melville stockholders after the Distribution would not change and the tax
basis of the shares of Footstar Common Stock would be equal to their fair
market value on the Distribution Date. In addition, Melville would recognize
a capital gain equal to the difference between the fair market value of the
shares of Footstar Common Stock and Melville's basis in such shares.
Current Treasury regulations require each Melville shareholder
who receives Footstar Common Stock pursuant to the Distribution to attach to
its federal income tax return for the year in which the Distribution occurs a
descriptive statement concerning the Distribution. Melville (or Footstar on
its behalf) will make available requisite information to each Melville
shareholder of record as of the Record Date.
ALL SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS
REGARDING THE PARTICULAR FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF
THE DISTRIBUTION TO THEM.
For a description of agreements pursuant to which Melville and
Footstar have provided for certain tax sharing and other tax matters, see
"Relationship Between Melville and Footstar following the Distribution--Terms
of the Tax Disaffiliation Agreement."
Relationship between Melville and Footstar Following the Distribution
This section of this Report describes certain agreements
between Melville and Footstar that govern certain of the on-going
relationships between Melville and Footstar after the Distribution and provide
for an orderly transition to the status of two separate, independent
companies. The following description of the Distribution Agreement and the Tax
Disaffiliation Agreement (collectively, the "Distribution Documents"), do not
purport to be complete and are qualified in their entirety by reference to the
Distribution Documents, which are filed as exhibits to this Current Report on
Form 8-K and are incorporated herein by reference.
The Distribution Documents were entered into in connection with
the Distribution and were, therefore, not the result of arm's length
negotiation between independent parties. Additional or modified agreements,
arrangements and transactions may be entered into between Melville and
Footstar after the Distribution, which will be negotiated at arm's length.
Terms of the Distribution Agreement
Melville and Footstar entered into a Distribution Agreement as
of September 24, 1996 (the "Distribution Agreement"), among other things, to
provide for the principal corporate transactions and certain procedures for
effecting the Distribution, to define certain aspects of the relationship
between Melville and Footstar after the Distribution and to provide for the
allocation of certain assets and liabilities between Melville and Footstar.
Contribution of Assets
Pursuant to the Distribution Agreement, prior to the
Distribution Date, Melville contributed (the "Contributions") to Footstar all
of the outstanding shares of capital stock of, or other ownership interests
in, the subsidiaries that own or operate Meldisco, Footaction and the
discontinued Thom McAn business (except for Kmart Corporation's minority
interest in the Meldisco subsidiaries).
Cross Indemnification
Footstar and Melville have indemnified one another against
certain liabilities. Footstar has indemnified Melville and its subsidiaries
(other than Footstar and its subsidiaries) (Melville and such subsidiaries
being the "Melville Group") and their respective directors, officers and
affiliates (collectively, the "Melville Indemnitees") from and against any and
all damage, loss, liability and expense incurred or suffered by any of the
Melville Indemnitees (i) arising out of or due to the failure of Footstar to
pay, perform or otherwise discharge any obligations and liabilities of
Footstar and its subsidiaries (including subsidiaries contributed pursuant to
the Contributions and including subsidiaries as of and (except where the
context clearly indicates otherwise) after the Distribution (the "Footstar
Group")) under the Distribution Agreement (including all liabilities, whenever
arising, of or relating to the Footstar Group or arising from or in connection
with the conduct of the Footstar business or the ownership or use of assets in
connection therewith) or (ii) arising out of or in connection with the
provision by the Melville Group of Services (as defined below) to the Footstar
Group pursuant to the Distribution Agreement. A subsidiary of Footstar will
indemnify each of the Melville Indemnitees against any and all damage, loss,
liability and expense arising out of or due to the failure of any Footstar
subsidiary to pay, perform or otherwise discharge its obligations under any
Guaranteed Lease (as defined below). Such indemnification obligations of
this Footstar subsidiary with respect to the Guaranteed Leases are guaranteed
by Footstar.
Melville has indemnified the Footstar Group and the respective
directors, officers and affiliates of persons in the Footstar Group
(collectively, the "Footstar Indemnitees") from and against any and all
damage, loss, liability and expense arising out of or due to the failure of
Melville to pay, perform, or otherwise discharge any obligations and
liabilities of the Melville Group under the Distribution Agreement (including
all liabilities, whenever arising, of or relating to the Melville Group or
arising from or in connection with the conduct of the businesses of the
Melville Group (other than the Footstar business) or the ownership or use of
assets in connection therewith).
Melville and Footstar have indemnified the other and the
other's affiliates and controlling persons from certain liabilities under the
securities laws in connection with Foostar's Registration Statement on Form 10
under the Securities Exchange Act of 1934 relating to the Distribution (and
the related Information Statement dated September 26, 1996) or to contribute
under certain circumstances to the amount payable by the other in respect
thereof.
None of the foregoing indemnities applies to indemnification
for tax liabilities, which are addressed in the Tax Disaffiliation Agreement
described below.
The Distribution Agreement also includes procedures for notice
and payment of indemnification claims and generally provides that the
indemnifying party may assume the defense of a claim or suit brought by a
third party. Any indemnification paid under the foregoing indemnities is to
be paid net of the amount of any insurance or other amounts that would be
payable by any third party to the indemnified party in the absence of such
indemnity and net of any tax benefit to the Indemnified Party attributable to
the relevant payment or liability, and shall be grossed up so that the
indemnified party receives 100% of the after-tax amount thereof.
Lease Guarantees
The Distribution Agreement provided that, with respect to each
real estate lease of Footstar or any of its subsidiaries that was in effect
prior to the Distribution and that remains in effect following the
Distribution (i) without any renewal option having been exercised or (ii) by
reason of the exercise of any renewal option provided for in the terms of the
lease as of the Distribution (collectively, the "Guaranteed Leases"), any lease
guarantee of such Guaranteed Lease provided by Melville or Melville Realty
Corporation ("MRC") and in effect as of the Distribution (a "Lease Guarantee")
will remain in effect after the Distribution for the duration of the term of
such lease and any extension thereof pursuant to the exercise of any such
renewal option. Melville and MRC are indemnified against any liabilities
arising from such Lease Guarantees as described under "--Cross
Indemnification" above.
Transfer of Assets
Subject to receipt of any necessary consents of third parties
or regulatory bodies, (i) Melville will use its best efforts to transfer to
the Footstar Group all assets not already owned by the Footstar Group and that
relate solely to the business of the Footstar Group (and not to that of
Melville) and Footstar will assume all liabilities associated with such assets
and (ii) Footstar will use its best efforts to transfer to the Melville Group
all assets not already owned by the Melville Group and that relate solely to
the business of the Melville Group (and not to that of the Footstar Group) and
Melville will assume all liabilities associated with such assets.
Transitional Services
Melville will provide or cause to be provided to Footstar
certain specified services for a transitional period after the Distribution.
The transitional services to be provided by Melville to Footstar are tax
services ("Tax Services") as specified in the Tax Disaffiliation Agreement (as
defined below), services relating to certain Melville health and welfare plans
("Welfare Services"), check collection services and insurance claims
administration services (collectively, the "Services"). Such Services are to
be provided in a manner generally consistent with the nature of Melville's
intercompany services and practices prior to the Distribution.
The Services are generally to be offered through the first
anniversary of the Distribution Date, with the exception of Tax Services which
are offered until December 31, 1997 and Welfare Services which are offered
until December 31, 1996.
The Distribution Agreement generally provides that the Services
are provided in exchange for payment of Melville's costs therefor, except with
respect to Tax Services for which the consideration is the provision by
Footstar of certain tax services to Melville.
Employee Benefits
The Distribution Agreement provides that generally Melville
ceases to have any liability under its employee benefit plans with respect to
employees and former employees of the Footstar Group after the Distribution,
except that (i) options and other outstanding stock based awards in respect of
Melville stock continue to operate in accordance with their terms, (ii) the
full account balances of current employees of the Footstar Group in Melville's
401(k) profit sharing plan will be transferred to a similar successor plan of
Footstar and (iii) employees of the Footstar Group are entitled to exercise
applicable distribution rights under Melville's employee stock ownership plan.
Melville Rights in the Event of Certain Third Party
Beneficial Ownership of Footstar
The Distribution Agreement generally provides that no person or
group may acquire beneficial ownership of more than 35% of the Footstar Common
Stock, unless prior to such acquisition, the acquiror has provided to Melville
a guarantee of Footstar's indemnity and other obligations under the
Distribution Agreement. In addition, if any person or group acquires such
beneficial ownership of Footstar, Melville may forthwith terminate the
provision of Services.
Access to Information; Provision of Witnesses; Confidentiality
Pursuant to the Distribution Agreement, each of Footstar and
Melville has agreed, for a reasonable period of time, to afford the other and
certain of their agents reasonable access to all records in its possession
relating to the business and affairs of the other party as reasonably
required, including, for auditing, accounting, litigation, disclosure and
reporting purposes, subject to limited exceptions. Each party will also use
reasonable efforts to make available to the other, its officers, directors,
employees and agents as witnesses, and otherwise cooperate with the other
party, in connection with any proceeding arising out of the business of it or
the other party prior to the Distribution.
Except as otherwise provided in the Distribution Agreement,
Footstar, Melville, and their respective officers, directors, employees and
agents will hold all information in its possession concerning the other party
in strict confidence.
Transaction Expenses
Melville is generally responsible for all transaction expenses
incurred by the Melville Group or the Footstar Group in connection with the
Distribution, except that Footstar is responsible for all fees and expenses
under or in connection with its bank credit facility.
Terms of the Tax Disaffiliation Agreement
Melville and Footstar have entered into a tax disaffiliation
agreement (the "Tax Disaffiliation Agreement") that sets forth each party's
rights and obligations with respect to payments and refunds, if any, with
respect to taxes for periods before and after the Distribution and related
matters such as the filing of tax returns and the conduct of audits or other
proceedings involving claims made by taxing authorities.
In general, Melville will be responsible for filing
consolidated federal and consolidated, combined or unitary state income tax
returns for periods through the Distribution Date, and paying the associated
taxes. Footstar will reimburse Melville for the portion of such taxes, if any,
relating to the retail footwear businesses (except to the extent attributable
to Bob's or Marshalls), provided, however, that with respect to any combined
and unitary state income taxes based in part on allocation percentages,
Footstar will reimburse Melville for the portion of such taxes attributable to
the retail footwear businesses' contribution to the relevant allocation
percentage. Footstar will be reimbursed, however, for tax attributes, such as
net operating losses and foreign tax credits, when and to the extent that they
are used on a consolidated, combined or unitary basis. Footstar will be
responsible for filing, and paying the taxes associated with, all other tax
returns relating to pre-Distribution tax periods relating solely to Footstar's
businesses. Melville, however, will be responsible for preparing all income
tax returns to be filed by Footstar for tax periods that end on or before the
Distribution Date.
In general, Footstar will indemnify Melville for taxes
relating to a pre-Distribution tax period to the extent such taxes are
attributable to the retail footwear businesses (except to the extent
attributable to Bob's or Marshalls) or, in the case of any combined and
unitary state income taxes based in part on allocation percentages, to the
extent such taxes are attributable to the retail footwear businesses'
contribution to the relevant allocation percentage and Melville will
indemnify Footstar for all other taxes relating to a pre-Distribution tax
period. The Tax Disaffiliation Agreement also provides that Melville will
generally pay to Footstar the net benefit realized by Melville relating to
Footstar's businesses from the carryback to pre-Distribution tax periods of
certain tax attributes of Footstar arising in post-Distribution tax
periods.
Pursuant to the Tax Disaffiliation Agreement, Footstar will
refrain from engaging in certain transactions for two years following the
Distribution Date unless it shall first provide Melville with a ruling from
the Internal Revenue Service or an unqualified opinion of counsel that the
transaction will not cause the Distribution to become taxable. Transactions
subject to these restrictions will include, among other things, the
liquidation, merger, or consolidation with another company, the issuance or
redemption of Footstar Common Stock, the sale, distribution or other
disposition of assets out of the ordinary course of business, and the
discontinuation of certain businesses, except as such transaction relates to
the discontinuation of the Thom McAn business. Footstar will generally
indemnify Melville against any tax liability resulting from Footstar's breach
of any covenant or representation contained in the Tax Disaffiliation
Agreement with respect to such transactions. In addition, Footstar and
Melville have each agreed that neither party will take any action inconsistent
with the information furnished by such party in connection with the rendering
of the legal opinion regarding the tax-free nature of the Distribution and,
until the expiration of the statute of limitations period applicable to the
taxable year in which the Distribution occurs, neither party will make or
change any accounting method, amend any tax return or take any tax position on
any tax return, change the manner in which it conducts its business, or take
(or omit to take) any other action that results in any increased tax liability
relating to a pre-Distribution tax period. Footstar and Melville have agreed
to indemnify the other for liabilities arising as a result of the breach by
Footstar or Melville, as the case may be, of the foregoing agreement.
Footstar and Melville have also agreed to indemnify the other from liabilities
under the securities laws or otherwise resulting from information furnished by
Footstar or Melville, as the case may be.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(b) Pro Forma Financial Information
Set forth hereunder is the pro forma financial
information required to be furnished by the Registrant with respect to the
transaction described in Item 2 above.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Prior to the Distribution Date, Footstar had been operating as part of
Melville. The following Unaudited Pro Forma Statement of Operations sets
forth the historical Statement of Operations of the Company for the fiscal
year ended December 31, 1995 and for the six months ended June 29, 1996 and
as adjusted for the Distribution and the related transactions and events
described in the Notes to such Unaudited Pro Forma Statements of Operations
as if the Distribution and such transactions and events had been
consummated on January 1, 1995. It should be noted that the Company's
historical Statements of Operations reflect Footstar in discontinued
operations for all periods presented. The following Unaudited Pro Forma
Balance Sheet sets forth the historical balance sheet of the Company as of
June 29, 1996, and as adjusted for the Distribution and the related
transactions and events described in the Notes to such Unaudited Pro Forma
Balance Sheet as if the Distribution and such transactions and events had
been consummated on June 29, 1996.
Management believes that the assumptions used provide a reasonable basis on
which to present such Unaudited Pro Forma Statements of Operations and
Unaudited Pro Forma Balance Sheet (collectively referred to as the
"Unaudited Pro Forma Financial Statements"). The Unaudited Pro Forma
Financial Statements should be read in conjunction with the Company's
historical Consolidated Financial Statements and Notes thereto contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 and Quarterly Report on Form 10-Q for the quarterly period ended
June 29, 1996. The Unaudited Pro Forma Financial Statements are provided
for informational purposes only and should not be construed to be
indicative of the Company's results of operations or financial condition
had the Distribution and the transactions and events described above been
consummated on the dates assumed and are not necessarily indicative of the
Company's future results of operations or financial condition.
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Unaudited Pro Forma Statement of Operations
For the Fiscal Year Ended December 31, 1995
(Dollars in millions, except per share amounts)
Continuing
Operations Pro Forma
Before Pro Forma Pro Forma Continuing
Melville Footstar (e) Adjustments Adjustments Operations
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Net sales $ 4,865.0 $ - $ 4,865.0 $ - $ 4,865.0
Cost of goods sold, buying and
warehousing costs 3,506.4 - 3,506.4 - 3,506.4
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Gross margin 1,358.6 - 1,358.6 - 1,358.6
Selling, general and administrative
expenses 1,075.5 - 1,075.5 (38.0) b 1,037.5
Depreciation and amortization 71.1 - 71.1 - 71.1
Restructuring and asset impairment
charge 165.6 - 165.6 - 165.6
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Total operating expenses 1,312.2 - 1,312.2 (38.0) 1,274.2
Operating profit 46.4 - 46.4 38.0 84.4
Gain on sale of securities - - - - -
Dividend income - - - - -
Interest expense, net 53.6 - 53.6 (0.9) a 53.9
1.2 c
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Total other expense 53.6 - 53.6 0.3 53.9
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Loss (earnings) from continuing
operations (7.2) - (7.2) 37.7 30.5
Income tax benefit (provision) 2.9 - 2.9 (15.5) d (12.6)
-------------------------------------------------------------------------------------
Net (loss) earnings from continuing
operations $ (4.3) $ - $ (4.3) $ 22.2 $ 17.9
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Net (loss) earnings per share of common
stock from continuing operations $ (0.20) $ 0.01
============ ===========
Notes to Pro Forma Statement of Operations:
- -------------------------------------------
a To adjust interest expense to reflect the reduction in notes payable.
b To record the estimated reduction in corporate overhead for the period
presented attributed to the Footstar Spin-off.
c To record the incremental ESOP costs resulting from the conversion of
302,108 shares of Series One ESOP Convertible Preferred Stock related to Footstar
participants at January 1, 1995.
d To record the net change in the provision for income taxes based upon the
Pro Forma Statement of Operations.
e Melville's historical Statement of Operations reflects Footstar in
discontinued operations. As such, no adjustments appear in the indicated column in the above
table.
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Unaudited Pro Forma Statement of Operations
For the Six Months Ended June 29, 1996
(Dollars in millions, except per share amounts)
Continuing
Operations Pro Forma
Before Pro Forma Pro Forma Continuing
Melville Footstar (e) Adjustments Adjustments Operations
------------------------------------------------------------------------------------
Net sales $ 2,621.9 $ - $ 2,621.9 $ - $ 2,621.9
Cost of goods sold, buying and
warehousing costs 1,871.4 - 1,871.4 - 1,871.4
------------------------------------------------------------------------------------
Gross margin 750.5 - 750.5 - 750.5
Selling, general and administrative
expenses 555.3 - 555.3 (11.1) b 544.2
Depreciation and amortization 39.6 - 39.6 - 39.6
Restructuring and asset impairment
charge - - - - -
------------------------------------------------------------------------------------
Total operating expenses 594.9 - 594.9 (11.1) 583.8
------------------------------------------------------------------------------------
Operating profit 155.6 - 155.6 11.1 166.7
Gain on sale of securities 76.6 - 76.6 - 76.6
Dividend income 5.4 - 5.4 - 5.4
Interest expense, net (17.5) - (17.5) 0.5 a (17.5)
(0.5) c
------------------------------------------------------------------------------------
Total other income 64.5 - 64.5 - 64.5
------------------------------------------------------------------------------------
Earnings from continuing operations 220.1 - 220.1 11.1 231.2
Income tax provision 88.7 - 88.7 4.6 d 93.3
------------------------------------------------------------------------------------
Net earnings from continuing operations $ 131.4 $ - $ 131.4 $ 6.5 $ 137.9
====================================================================================
Net earnings per share of common stock
from continuing operations $ 1.18 $ 1.24
============ ==========
Notes to Pro Forma Statement of Operations:
- ------------------------------------------
a To adjust interest expense to reflect the reduction in notes payable.
b To record the estimated reduction in corporate overhead for the period
presented attributed to the Footstar Spin-off.
c To record the incremental ESOP costs resulting from the conversion of
248,643 shares of Series One ESOP Convertible Preferred Stock related to
Footstar participants at January 1, 1995.
d To record the net change in the provision for income taxes based upon
the Pro Forma Statement of Operations.
e Melville's historical Statement of Operations reflects Footstar in
discontinued operations. As such, no adjustments appear in the indicated
column in the above table.
MELVILLE CORPORATION AND SUBSIDIARY COMPANIES
Unaudited Pro Forma Consolidated Balance Sheet
June 29,1996
(Dollars in millions)
Continuing
Operations Pro Forma
Before Pro Forma Pro Forma Continuing
Melville Footstar Adjustments Adjustments Operations
---------------------------------------------------------------------------------
C>
Assets
Cash and cash equivalents $ 82.3 $ 22.6 $ 59.7 $ 16.1 c $ 59.7
(16.1) f
Investments 101.8 - 101.8 101.8
Accounts receivable 189.9 58.0 131.9 131.9
Due from parent 626.6 (626.6) (0.3) a -
896.8 b
(269.9) c
Inventories 1,434.3 311.9 1,122.4 1,122.4
Prepaid expenses 285.6 55.7 229.9 0.7 a 230.6
---------------------------------------------------------------------------------
Total current assets 2,093.9 1,074.8 1,019.1 627.3 1,646.4
Property and equipment, net 891.9 174.0 717.9 717.9
Deferred charges and other assets 243.6 27.1 216.5 (0.4) a 216.1
Goodwill, net 174.5 29.2 145.3 145.3
---------------------------------------------------------------------------------
Total assets $3,403.9 $1,305.1 $ 2,098.8 $ 626.9 $2,725.7
=================================================================================
Liabilities
Accounts payable $ 467.8 $ 50.5 $ 417.3 $ 417.3
Accrued expenses 808.6 164.8 643.8 643.8
Notes payable 91.9 - 91.9 (16.1) f 75.8
Other current liabilities 14.8 - 14.8 14.8
---------------------------------------------------------------------------------
Total current liabilities 1,383.1 215.3 1,167.8 (16.1) 1,151.7
Long-term debt 321.4 0.1 321.3 321.3
Deferred income taxes 12.1 - 12.1 12.1
Other long-term liabilities 134.3 58.6 75.7 75.7
Minority interest in subsidiaries 41.7 41.7 - -
Redeemable preferred stock 1.3 - 1.3 1.3
Shareholders' equity
Footstar equity 989.4 (989.4) 896.8 b (0.0)
(253.8) c
346.4 d
Preferred stock 316.6 - 316.6 (13.3) e 303.3
Guaranteed ESOP obligations (309.7) - (309.7) (309.7)
Common stock 111.9 - 111.9 111.9
Capital surplus 64.2 - 64.2 1.8 e 66.0
Retained earnings 1,588.9 - 1,588.9 (346.4) d 1,242.5
Unrealized gain on investments, net 25.8 - 25.8 25.8
Cumulative translation adjustment 0.1 - 0.1 0.1
Common stock in treasury (287.8) - (287.8) 11.5 e (276.3)
---------------------------------------------------------------------------------
Total shareholders' equity 1,510.0 989.4 520.6 643.0 1,163.6
---------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $3,403.9 $1,305.1 $2,098.8 $626.9 $2,725.7
=================================================================================
Notes to Pro Forma Balance Sheet:
- --------------------------------
a To reflect the transfer of net assets related to Melville sponsored
employee benefit plans to Melville.
b To reflect the transfer of retained earnings to Melville.
c To reflect the elimination of the resulting intercompany indebtedness.
d To reflect the contribution of Melville's equity investment to Footstar.
e To reflect the conversion of 248,643 shares of Series One ESOP Convertible Preference
Stock related to Footstar participants to common stock.
f To reflect a reduction in notes payable equal to the cash received in
settlement of intercompany indebtedness.
(c) Exhibits.
99.1 Distribution Agreement dated as of September 24, 1996
between Melville Corporation, Footstar, Inc. and
Footaction Center, Inc.
99.2 Tax Disaffiliation Agreement dated as of September 24,
1996 between Melville Corporation and Footstar, Inc.
SIGNATURES
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 hereunto duly authorized.
MELVILLE CORPORATION
Dated: October 27, 1996 By /s/ Charles Conaway
Name: Charles Conaway
Title: Chief Financial Officer
EXHIBIT INDEX
99.1 Distribution Agreement dated as of September 24, 1996
between Melville Corporation, Footstar, Inc. and
Footaction Center, Inc.
99.2 Tax Disaffiliation Agreement dated as of September 24,
1996 between Melville Corporation and Footstar, Inc.