1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 26,October 25, 1997
Commission file no. 1-10299
WOOLWORTH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3513936
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
233 Broadway, New York, New York 10279-0003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
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 of Common Stock outstanding at August 29,December 1, 1997:134,914,082 134,934,574
2
WOOLWORTH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 1413
Signature 1514
Index to Exhibits 16-1815-17
-2-
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
JulyOctober 25, October 26, July 27, January 25,
1997 1996 1997
---- ---- ----
(Unaudited) (Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 6949 $ 9727 $ 328
Merchandise inventories 1,216 1,2591,377 1,373 1,066
Net assets of discontinued operations 209 268-- 359 236
Other current assets 174 205233 202
------- ------- -------
1,668 1,829------ ------ ------
1,600 1,992 1,832
Property and equipment, net 903 1,032954 993 983
Deferred charges and other assets 737 592746 589 524
------- ------- -------
$ 3,308 $ 3,453 $ 3,339
======= ======= =======------ ------ ------
3,300 $3,574 $3,339
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 3826 $ 137115 $ --
Accounts payable 352 360351 369 286
Accrued liabilities 526 350424 425 427
Net liabilities of discontinued operations 49 -- --
Current portion of long-term debt and obligations
under capital leases 14 17 15 ------- ------- -------
930 86415 15
------ ------ ------
865 924 728
Long-term debt and obligations
under capital leases 568 605571 591 575
Deferred taxes and other liabilities 721 779710 776 702
Shareholders' Equity:
Preferred stock -- -- --
Common stock and paid-in capital 311 297315 296 299
Retained earnings 870 891925 960 1,050
Foreign currency translation adjustment (55) 52(49) 63 22
Minimum pension liability adjustment (37) (35)(36) (37)
------- ------- ------------- ------ ------
Total shareholders' equity 1,089 1,2051,154 1,283 1,334
Commitments
------- ------- -------
$ 3,308 $ 3,453 $ 3,339
======= ======= =======$3,300 $3,574 $3,339
====== ====== ======
See accompanying notes to Condensed Consolidated Financial Statements.
-3-
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
Thirteen weeks ended Twenty-sixThirty-nine weeks ended
---------------------------- ----------------------------
July--------------------------- ---------------------------
Oct. 25, Oct. 26, July 27, JulyOct. 25, Oct. 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
Sales $ 1,5001,583 $ 1,6071,790 $ 3,0394,622 $ 3,1774,967
Cost and Expenses:
Cost of sales 1,037 1,095 2,111 2,2141,090 1,199 3,201 3,413
Selling, general and administrative expenses 370 416 758 831367 423 1,125 1,254
Depreciation and amortization 43 44 84 8941 46 125 135
Interest expense 11 15 2210 13 32 45
Other income (2) (6) (6) (7)(11) (20) (17) (27)
------- ------- ------- -------
1,459 1,564 2,969 3,1591,497 1,661 4,466 4,820
------- ------- ------- -------
Income from continuing operations
before income taxes 41 43 70 1886 129 156 147
Income tax expense 15 17 27 731 52 58 59
------- ------- ------- -------
Income from continuing operations 26 26 43 1155 77 98 88
Loss from discontinued operations, net of income
taxes of $8, $2,$6, $19 and $7,$13, respectively (12) (4)-- (8) (28) (11)(19)
Loss on disposal of discontinued operations,
net of income taxes of $115 (195)-- -- (195) --
Net income (loss) $ (181)55 $ 2269 $ (180)(125) $ --69
======= ======= ======= =======
Per common share:
Income from continuing operations $ 0.190.41 $ 0.190.58 $ 0.320.73 $ 0.080.66
Loss from discontinued operations $ (1.54) $ (0.02) $-- (0.06) (1.66) $ (0.08)(0.14)
------- ------- ------- -------
Net income (loss) $ (1.35)0.41 $ 0.170.52 $ (1.34)(0.93) $ --0.52
======= ======= ======= =======
Weighted-average common shares outstanding 134.9 133.6 134.5 133.3 134.3 133.2
See accompanying notes to Condensed Consolidated Financial Statements.
-4-
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(in millions)
Twenty-sixThirty-nine weeks ended
----------------------
JulyOct. 25, Oct. 26, July 27,
1997 1996
---- ----
Retained earnings at beginning of year $ 1,050 $ 891
Net income (loss) (180) --(125) 69
Cash dividends declared:
Preferred stock (1996 - $1.10 per share) -- --
------- -------
Retained earnings at end of interim period $ 870925 $ 891960
======= =======
See accompanying notes to Condensed Consolidated Financial Statements.
-5-
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Twenty-sixThirty-nine weeks ended
----------------------------
July-------------------------
Oct. 25, Oct. 26, July 27,
1997 1996
---- ----
From Operating Activities:
Net income (loss) $(125) $ (180) $ --69
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Non-cash charge for discontinued operations, 310 --
Discontinued operations activities (11)net of tax 91 --
Depreciation and amortization 84 92125 135
Net gain on sales of real estate (4) (13)(11) (31)
Deferred income taxes (138) (16)(19) (6)
Change in assets and liabilities, net of acquisition:
Merchandise inventories (153) (91)(306) (200)
Accounts payable 63 121
Change in netand accrued expenses (69) 189
Net assets of discontinued operations 27 44288 (155)
Other, net (111) (121)
------- -------(24) (9)
----- -----
Net cash provided by (used in)used in operating activities (113) 16
------- -------(50) (8)
----- -----
From Investing Activities:
Proceeds from sales of real estate 19 2122 22
Capital expenditures (56) (36)(127) (63)
Payments for businessbusinesses acquired, net of cash acquired (140)(148) --
Proceeds from sales of assets and investments -- 19
------- -------25
----- -----
Net cash provided by (used in)used in investing activities (177) 4
------- -------(253) (16)
----- -----
From Financing Activities:
Increase in short-term debt 38 6926 46
Reduction in long-term debt and capital lease obligations (1) (9)(3) (10)
Issuance of common stock 1116 6
Redemption of preferred stock -- (1)
Dividends paid -- --
------- ------------ -----
Net cash provided by financing activities 48 66
------- -------39 41
----- -----
Effect of exchange rate fluctuations
on Cash and Cash Equivalents (17) (3)
------- -------(15) (4)
----- -----
Net change in Cash and Cash Equivalents (259) 83(279) 13
Cash and Cash Equivalents at beginning of year 328 14
------- ------------ -----
Cash and Cash Equivalents at end of interim period $ 6949 $ 97
======= =======27
===== =====
Cash paid during the period:
Interest $ 2224 $ 3235
Income taxes $ 4658 $ 914
See accompanying notes to Condensed Consolidated Financial Statements.
-6-
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WOOLWORTH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the 1996 Annual Report to Shareholders of Woolworth
Corporation (the "Registrant"), portions of which Annual Report are incorporated
by reference in the Registrant's Annual Report on Form 10-K for the year ended
January 25, 1997, as filed with the Securities and Exchange Commission (the
"SEC"). Certain items included in these statements are based on management's
estimates. In the opinion of management, all material adjustments, which are of
a normal recurring nature, necessary for a fair presentation of the results for
the interim period have been included. The results for the twenty-sixthirty-nine weeks
ended July 26,October 25, 1997 are not necessarily indicative of the results expected
for the year.
Discontinued Operations
On July 17, 1997, the Registrant announced that it iswas exiting its 400
store domestic Woolworth general merchandise business. The Registrant expects to
convert approximately 100130 of itsthe prime locations to Foot Locker, Champs Sports,
and other athletic or specialty formats. The Registrant expects to close itsconvert
approximately 40 of the stores to Athletic Group formats by January 1998. The
remaining domestic Woolworth general merchandise stores as well as the
division's distribution center in Denver, Pennsylvania bywere closed in November
1997.
The results of operations for all periods presented for thisthe domestic
Woolworth general merchandise business have been classified as discontinued
operations in the Condensed Consolidated Statements of Operations. Sales from
discontinued operations for the second
quartersperiod ended July 17, 1997 (date of 1997 andclose) were
$427 million. Sales for the thirty-nine week period ended October 26, 1996 were
$198 million and $249 million, respectively.
Sales from discontinued operations for the year-to-date periods ended July 26,
1997 and July 27, 1996 were $427 million and $499 million, respectively.$757 million.
The Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Cash Flows have been restated for discontinued operations. The
following is a summary of the net assets of discontinued operations:
July 26, July 27, Jan. 25,
1997 1996 1997
---- ---- ----
Assets $358 $400 $373
Liabilities 149 132 137
---- ---- ----
Net assets of discontinued operations $209 $268 $236
==== ==== ====
Oct. 25, Oct. 26, Jan. 25,
1997 1996 1997
---- ---- ----
Assets $ 100 $ 496 $ 373
Liabilities 149 137 137
----- ----- -----
Net assets (liabilities) of discontinued operations $ (49) $ 359 $ 236
===== ===== =====
The assets consist primarily of inventory and fixed assets. Liabilities
consist primarily of amounts due to vendors. During the period from July 17,
1997 through October 25, 1997, proceeds from disposals related to the
discontinued operations were $257 million which were primarily from the sale of
merchandise inventories.
In July, 1997, the Registrant recorded a charge to earnings of $310
million before-tax or $195 million after-tax, for the loss on disposal of
discontinued operations. Disposition activity related to the discontinued
operations reserve for the period of July 17, 1997 to July 26,ended October 25, 1997 was a reduction of
approximately $104 million and the remaining reserve balance at October 25, 1997
was $206 million.
On December 8, 1997, the Registrant announced the sale of its general
merchandise business in Mexico. The impact of this sale is not significant and
is included in the reserve of
approximately $11 million.for discontinued operations.
-7-
8
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current
period.
-7-
8
Legal Proceedings
Between March 30, 1994 and April 18, 1994, the Registrant and certain
of its present and former directors and officers were named as defendants in
lawsuits brought by certain shareholders claiming to represent classes of
shareholders that purchased shares of the Registrant's common stock during
different periods between January 1992 and
March 1994.
These class action complaints purport to present claims under the
federal securities and other laws and seek unspecified damages based on alleged
misleading disclosures during the class periods.
On April 29, 1994, United States Senior District Judge Richard Owen
entered an order consolidating 25 actions, purportedly brought as class actions,
commenced against the Registrant and certain officers and directors of the
Registrant in the United States District Court for the Southern District of New
York, under the caption In re Woolworth Corporation Securities Class Action
Litigation. Plaintiffs served an Amended and Consolidated Class Action
Complaint, to which the defendants responded. On February 17, 1995, Judge Owen
entered an order for certification of the action as a class action on behalf of
all persons who purchased the Registrant's common stock or options on the
Registrant's common stock from May 12, 1993 to March 29, 1994 inclusive,
pursuant to a stipulation among the parties. On March 13, 1997, the parties'
representatives engaged in a mediation proceeding with a view toward settling
the issues in dispute. On June 23, 1997, a proposed settlement of the class
action was reached by the parties that provides for the payment to the class of
$20 million. TheOn October 6, 1997, the court entered final judgment approving the
settlement is subject to final approval of the court which has
scheduled a settlement hearing for September 29, 1997.class action and dismissing the class action with prejudice.
The amount of the settlement, net of amounts to be paid by insurance carriers
under relevant insurance policies, hashad been reserved by the Registrant. In the
opinion of management, the settlement if approved by the court, wouldwill not have a material adverse effect on
the financial position or results of operations of the Registrant.
Five separate state-court derivative actions filed in April 1994 were
consolidated under the caption In re Woolworth Corporation Derivative Litigation
and are now pending in the Supreme Court of the State of New York, County of New
York. Plaintiffs served a Consolidated Complaint on behalf of the plaintiffs in
these five actions together with the plaintiff in the former federal derivative
action Sternberg v. Woolworth Corp., which has been dismissed. Defendants moved
to dismiss the Consolidated Complaint, and on April 27, 1995, the court granted
defendants' motion, with leave to the plaintiffs to replead. On June 7, 1995,
plaintiffs served a Consolidated Amended Derivative Complaint. On June 27, 1995,
defendants moved to dismiss the Consolidated Amended Derivative Complaint with
prejudice. On April 10, 1996, the court granted defendants' motion with
prejudice. Plaintiffs filed a notice of appeal from the dismissal to the
Appellate Division, First Department. On June 5, 1997, the court affirmed the
dismissal of this action. Plantiffs' time to appeal the dismissal has expired
and there have been no further proceedings.
There is one federal derivative action pending in the United States
District Court for the Southern District of New York under the caption Rosenbaum
v. Sells et al. There have been no material
developments in this action. InOn December 2, 1997, the opinionparties submitted to the court a
proposed Stipulation and Order of management,Dismissal which, if approved by the results of thiscourt
will dismiss the action would not have a material adverse effect on the financial position or
results of operations of the Registrant.with
prejudice.
During 1994, the staff of the SEC initiated an inquiry relating to the
matters that were reviewed by the Special Committee of the Board of Directors as
well as in connection with trading in the Registrant's securities by certain
directors and officers of the Registrant. The SEC staff has advised that its
inquiry should not be construed as an indication by the SEC or its staff that
any violations of law have occurred. In the opinion of management, the result of
the inquiry will not have a material adverse effect on the financial position or
results of operations of the Registrant.
The information in this section on Legal Proceedings is current as of
September
4,December 8, 1997.
-8-
9
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
per Share", which is effective for financial statements issued for periods
ending after December 15, 1997 and therefore, effective for the Registrant for
the fiscal year ending January 31, 1998. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
Opinion No. 15 and establishes new standards for computing and presenting
earnings per share. Application of SFAS No. 128 is not expected to have a
significant impact on the Registrant's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for financial statements issued for fiscal years
beginning after December 15, 1997 and therefore, effective for the Registrant
for the fiscal year beginning February 1, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. A revised presentation of information on the income
statement is required for comparative purposes.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for financial
statements issued for fiscal years beginning after December 15, 1997 and
therefore, effective for the Registrant for the fiscal year beginning February
1, 1998. SFAS No. 131 supersedes previously established standards for reporting
operating segments in the financial statements and requires disclosures
regarding selected information about operating segments in interim financial
reports.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed more fully in the footnotesNotes to the Condensed Consolidated Financial
Statements, the Registrant announced that it iswas exiting its domestic Woolworth
general merchandise business. Accordingly, the results of operations for all
periods presented for this business have been classified as discontinued
operations and all financial statements have been restated.
Total sales for the 1997 secondthird quarter decreased 6.711.6 percent to $1,500$1,583
million as compared with $1,607$1,790 million for the 1996 secondthird quarter principally due
to 423reflecting,
in part, 270 fewer stores. Excluding the effect of foreign currency fluctuations
and sales from disposed operations, sales remained leveldecreased 5.5 percent for the quarter.
Comparable-store sales decreased 2.57.6 percent. Total Specialty segment sales
increased 1.8decreased 4.1 percent in the secondthird quarter and comparable-store sales decreased
1.57.8 percent. International General Merchandise segment sales decreased 17.423.3
percent for the secondthird quarter of 1997 as compared with the secondthird quarter of
1996. Comparable-store sales in the International General Merchandise segment
decreased 5.37.1 percent during the period. Excluding the impact of foreign
currency fluctuations, International General Merchandise sales decreased by 6.612.0
percent, as compared with the secondthird quarter of 1996.
Year-to-date 1997 sales decreased 4.36.9 percent to $3,039$4,622 million as
compared with $3,177$4,967 million for 1996. Excluding the effect of foreign currency
fluctuations and sales from disposed operations, sales increased 2.5remained level in
comparison with the prior year period. Comparable-store sales decreased 3.6
percent as compared with 1996. Comparable-store sales decreased 1.4 percent as compared
withthe corresponding
year-earlier period.
SecondThird quarter operating profit from continuing operations (before
corporate expense, interest expense and income taxes) of $74declined to $104 million improved
as compared with $72$152 million in the secondthird quarter of 1996. This improvement
relates to the dispositiondecline is
primarily a result of unprofitable formatslower sales and reducedan increase in markdowns, partially offset
by a decrease in selling, general and administrative expenses ("SG&A") partially offset by an increase in cost of
sales. The improvement in. SG&A
of $46expenses decreased $56 million and $73$129 million for the thirteen -9-
10
and twenty-sixthirty-nine
weeks ended July 26,October 25, 1997, respectively, as compared with the corresponding
prior year periodsperiods. This improvement reflects management's continuing effort to
implement cost reduction initiatives. CostPrior year SG&A expenses included a charge
for early retirement and severance programs in Germany of sales as a percentage$21 million and $31
million for the thirteen and thirty-nine weeks ended October 26, 1996,
respectively.
-9-
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The net gain on the divestiture of sales
increased as a resultnon-strategic real estate in the
third quarter periods ended October 25, 1997 and October 26, 1996 totaled $7
million and $18 million, respectively. These gains primarily related to the sale
of inventory markdowns taken to keep inventory current.real estate located in Germany.
The Registrant reported income from continuing operations for the
thirteen weeks ended July 26,October 25, 1997 of $26$55 million, or $0.19$0.41 per share,
unchanged
fromcompared with $77 million, or $0.58 per share, in the restated year-earlier
period. For the twenty-sixthirty-nine weeks ended July 26,October 25, 1997 income from continuing
operations was $43$98 million, an increase of $32$10 million from the restated prior
year period. TheFor the year-to-date period ended October 25, 1997 the Registrant
reported a net loss for the quarter of $181$125 million, or $1.35$0.93 per share, which includes an
after-tax charge of $207$223 million, or $1.54$1.66 per share for discontinued
operations. This compares towith net income of $22$69 million, or $0.17$0.52 per share for
the corresponding year-earlier period. The Registrant reported a net loss of $180 million, or
$1.34 per share, for the twenty-six weeks ended July 26, 1997 compared with
break-even results for the corresponding year-earlierprior year period.
As of July 26,October 25, 1997, the Registrant operated a total of 7,1177,169 stores
consisting of 6,5556,611 Specialty stores and 562558 International General Merchandise
stores. This compares to 7,540with 7,439 stores, excluding discontinued operations,
consisting of 6,9336,863 Specialty stores and 607576 International General Merchandise
stores operated at July 27,October 26, 1996.
SALES
The following table summarizes sales for continuing operations by segment and
by
geographic area:
Thirteen weeks ended Twenty-sixThirty-nine weeks ended
---------------------------- ------------------------------------------------------ --------------------------
(in millions) JulyOct. 25, Oct. 26, July 27, JulyOct. 25, Oct. 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
By segment:
Specialty:
Athletic Group $ 859907 $ 838 $ 1,766 $ 1,676951 $2,670 $2,624
Northern Group 86 79 160 145110 110 270 255
Specialty Footwear 129 132 250 254139 149 389 403
Other Specialty 85 89 161 168
------- ------- ------- -------87 86 248 254
------ ------ ------ ------
Specialty total 1,159 1,138 2,337 2,243
------- ------- ------- -------1,243 1,296 3,577 3,536
------ ------ ------ ------
International General Merchandise:
Germany 305 369 631 739301 399 932 1,138
Other 3639 44 69 81
------- ------- ------- -------108 125
------ ------ ------ ------
International General Merchandise total 341 413 700 820
------- ------- ------- -------340 443 1,040 1,263
------ ------ ------ ------
Disposed operations -- 56 2 114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======51 5 168
------ ------ ------ ------
$1,583 $1,790 $4,622 $4,967
====== ====== ====== ======
By geographic area:
Domestic $ 940 $ 912 $ 1,928 $ 1,835$1,002 $1,039 $2,930 $2,874
International 560 639 1,109 1,228581 700 1,687 1,925
Disposed operations -- 56 2 114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======51 5 168
------ ------ ------ ------
$1,583 $1,790 $4,622 $4,967
====== ====== ====== ======
-10-
11
Specialty
Athletic Group third quarter sales decreased 4.6 percent as compared
with the third quarter of 1996, while decreasing 9.9 percent on a
comparable-store basis. Year-to-date Athletic Group sales increased by 2.51.8
percent, primarily due to sales from new stores, and 5.4decreased 3.9 percent on a
comparable-store basis, as compared with the corresponding prior year period.
The reduction in the 1997 third quarter Athletic Group sales was due to soft
athletic shoe sales, particularly in the cross-training and basketball
categories, as compared with the corresponding prior year period which had
strong cross-training and basketball shoe sales and licensed product sales
associated with the Olympics. Northern Group sales remained level for the third
quarter and increased 5.9 percent for the second quarter and year-to-date periods, respectively. These increases were
primarily due to 145 store openings as well as sales from the first quarter
acquisition of Eastbay, Inc. ("Eastbay").period. Comparable-store
sales decreased by 2.62.7 percent for the secondthird quarter and remained levelincreased by 1.8
percent for the year-to-date period. Northern Group sales increased by 8.9 percent and 10.3 percent for the
second quarter and year-to-date periods, respectively. Comparable-store sales
increased for both the quarter and the year-to-date periods by 4.6 percent and
5.1 percent, respectively. StoreSales from new store openings in the
Northern Reflections, a women's
casual sportswear store, and Northern Getaway, a children's apparel store alsoGroup contributed to the sales increase.
TheSpecialty Footwear's third quarter sales decreased 6.7 percent, and by
2.3 percent on a comparable-store basis, as compared with the corresponding
prior year period. The decrease is primarily due to a sales decline from Kinney
shoes, particularly in Canada. Specialty Footwear's second quarter sales,
which resulted from closing 115 stores, was offset by a comparable-store sales
increase of 2.0 percent. Sales declines in the Kinney format, particularly in
Canada, were mitigated by favorable comparable-store sales increases achieved by
store formats in Australia. For3.5 percent decline for the
year-to-date period Specialty Footwear
sales decreased by 1.6 percent,resulted from 305 fewer stores, while comparable-store sales
increased 1.9
percent.for the same period remained relatively level with the corresponding prior year
period. Other Specialty third quarter sales and comparable-store sales, adjusted
for 1996 dispositions, decreased by 4.5
percent and 4.2 percent forremained level as compared to the quarter and year-to-date periods, respectively.
Comparable-storecorresponding prior
year period. Year-to-date sales declined by2.4 percent, 0.9 percent and 1.7 percent, respectively.on a
comparable-store basis, as compared to the prior period. The year-to-date
decline in Other Specialty sales werewas mainly due to the closure of 98
under-performing stores related to ongoing formats.
International General Merchandise
German general merchandise sales decreased by 17.324.6 percent and 14.618.1
percent for the secondthird quarter and year-to-date periods, respectively. Excluding
the impact of foreign currency fluctuations, sales decreased 5.212.2 percent and
2.24.7 percent for the secondthird quarter and year-to-date periods, respectively.
Comparable-store sales decreased by 4.57.3 percent and 4.85.5 percent for the secondthird
quarter and year-to-date periods, respectively.
OPERATING RESULTS
Operating results from continuing operations (before corporate expense,
interest expense, and income taxes) are as follows:
Thirteen weeks ended Twenty-sixThirty-nine weeks ended
---------------------------- ------------------------------------------------------ --------------------------
(in millions) JulyOct. 25, Oct. 26, July 27, JulyOct. 25, Oct. 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
By Segment:
Specialty $ 8393 $ 96153 $ 141234 $ 135289
International General Merchandise (9) (18) (12) (30)5 (15) (7) (45)
Net gain on sales of real estate -- 6 4 67 18 11 23
Disposed operations -- (12) (2) (31)
------- ------- ------- -------(1) (4) (3) (35)
------ ------ ------ ------
$ 74104 $ 72152 $ 131235 $ 80
======= ======= ======= =======232
====== ====== ====== ======
By geographic area:
Domestic $ 7476 $ 81129 $ 141217 $ 132261
International -- (3) (12) (27)22 9 10 (17)
Net gain on sales of real estate -- 6 4 67 18 11 23
Disposed operations -- (12) (2) (31)
------- ------- ------- -------(1) (4) (3) (35)
------ ------ ------ ------
$ 74104 $ 72152 $ 131235 $ 80
======= ======= ======= =======232
====== ====== ====== ======
-11-
12
Specialty
The Specialty segment's operating profit decreased by $13$60 million, or
13.539.2 percent as compared with the 1996 secondthird quarter. The decrease was primarily
a result of lower sales and gross margins due to changes in merchandise mix and increased markdowns within the
Athletic Group. A shift in consumer preferences has contributed to the decisions
to take those markdowns and to reposition the Registrant's merchandise
assortment for the fourth quarter. Year-to-date operating profits increased $6decreased $55
million or 4.419.0 percent as compared with the corresponding period of 1996, which
is primarily due to the decline in sales and gross margin increases achieved by the Athletic Group in the
first quarter of 1997.margins.
The Specialty Footwear segment improved operating results through
continuing expense reduction initiatives. The Northern Group improved operating results
predominately through increased sales and higher margins.remained level for the year-to-date period.
International General Merchandise
TheOperating results in the International General Merchandise segment's operating losssegment
improved by $9$20 million and $18$38 million for the quarter and year-to-date periods
as compared with the secondthird quarter and year-to-date periods of 1996,
respectively. The Registrant's German operations have significantly lowered itsimprovement in the International General Merchandise operating
loss
through reduced expenses by operatingprofit compared with the prior year is attributable to expense reductions and a
more flexible, smaller workforce.$21 million charge for early retirement and severance programs recorded in the
corresponding prior year period.
Income Taxes
The estimated annual effective income tax rate applied in fiscal year
1997 is expected to be 37%, compared with the 40% rate for the prior year
period. This improvement primarily reflects a reduction of state and local
income tax valuation allowances.
SEASONALITY
The Registrant's businesses are highly seasonal in nature.
Historically, the greatest proportion of sales and net income is generated in
the fourth quarter and the lowest proportion of sales and net income is
generated in the first quarter, reflecting seasonal buying patterns.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $113$50 million for the
twenty-sixthirty-nine weeks ended July 26,October 25, 1997, as compared with cash provided of $16$8 million in the
comparable prior-year period. The increase in cash used resulted
fromwas primarily to fund inventory
purchases related to the timingdevelopment of new larger-size athletic formats, the
recent acquisition of 25 Koenig Sporting Goods stores and anticipated new store
openings. Inventories remained flat at $1,377 million as of October 25, 1997,
compared with a restated $1,373 million as of October 26, 1996. Common to the
retail industry are cyclical build-ups of inventory purchases. The Condensed Consolidated Statements of
Cash Flows have been restated for discontinued operations forimmediately prior to peak
selling periods, such as the prior period.upcoming holiday selling season. As such, in line
with this cyclical build-up, inventories increased $311 million at October 25,
1997 as compared with January 25, 1997.
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13
Net cash used in investing activities amountedincreased $237 million to $177$253
million for the twenty-sixthirty-nine weeks ended July 26,October 25, 1997, as compared with cash provided of $4$16
million used during the corresponding period in 1996. The increase in cash used
for investing was primarily due to the January 30, 1997 cash acquisitionacquisitions of Eastbay and 25 Koenig
Sporting Goods stores, which totaled approximately $148 million in the
aggregate. Capital expenditures increased by $64 million as compared with the
prior year as a result of new store development spending for existing formats.
Capital
expenditures increased by $20 million as compared to the prior-year second
quarter; approximately $285Approximately $300 million of capital expenditures are planned for the 1997
fiscal year as compared with $134 million in 1996.
Inventories decreased $43 million to $1,216 million as of July 26,
1997, from a restated $1,259 million as of July 27, 1996. The decrease from the
second quarter of 1996 reflects the Registrant's merchandise improvement efforts
as well as the sale of Silk & Satin, Lady Plus, Rubin and Moderna chains. The
$150 million increase in inventory levels from January 25, 1997 is a seasonal
increase, as inventory levels are at their lowest in the fourth quarter.
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13
Accounts payable at July 26,October 25, 1997 decreased by $8$18 million as
compared with theOctober 26, 1996 second quarter and increased by $66$65 million to $352$351 million as
compared with the year-end level. The increase from January 25, 1997 coincides
withis
the direct result of the seasonal increase in inventory.
Short-term debt at October 25, 1997 decreased $99$89 million as compared
with July 27,October 26, 1996 due to repayment of debt using cash generated from
operations. Short-term debt increased by $38$26 million from the year-end level
attributable to the financing of seasonal working capital needs.
Interest expense for the thirteen weeks ended July 26,October 25, 1997,
decreased $4$3 million over the comparable 1996 period. Interest expense for the
year-to-date period decreased $10$13 million. These declines were attributable to
the reduction in total debt levels of $139$109 million as well as lower financing
costs resulting from renegotiation of the Registrant's credit agreement.
Shareholders' equity at July 26,October 25, 1997 decreased $245$180 million from
the level at January 25, 1997. This decrease was primarily attributable to the
after-tax charge for discontinued operations of $195$223 million and changes
in foreign currency exchange rates.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference to the Legal Proceedings
section of the Notes to Condensed Consolidated Financial Statements on page 8 of
Part I, Item 1.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's annual meeting of shareholders was held on June
12, 1997, in New York, New York. Proxies were solicited by management of the
Registrant pursuant to Regulation 14A under the Securities Exchange Act of 1934;
there was no solicitation in opposition to management's nominees as listed in
the Notice of 1997 Annual Meeting and Proxy Statement, both dated May 5, 1997.
(b) Each of Jarobin Gilbert Jr., Margaret P. MacKimm and John J.
Mackowski were elected as a director in Class III for a three-year term ending
at the annual meeting of shareholders of the Registrant in 2000. All of such
individuals previously served as directors of the Registrant. J. Carter Bacot,
Purdy Crawford, Roger N. Farah, Philip H. Geier Jr., Dale W. Hilpert, James E.
Preston and Christopher A. Sinclair, having previously been elected directors of
the Registrant for terms continuing beyond the 1997 annual meeting of
shareholders, continue in office as directors. Helen Galland retired as a
director at the 1997 annual meeting of shareholders, having reached the
mandatory retirement age for directors.
(c) The matters voted upon and the results of the voting were as
follows:
(1) Election of Directors:
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
- --------------------- ------------- -------------- ----------------
Jarobin Gilbert Jr. 109,756,782 2,357,330 0
Margaret P. MacKimm 109,788,879 2,325,233 0
John J. Mackowski 109,759,371 2,354,741 0
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14
(2) Amendments to the Certificate of Incorporation and By-laws:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
110,678,945 880,980 554,187 0
(3) Ratification of the appointment of KPMG Peat Marwick LLP as independent
accountants for the fiscal year beginning January 26, 1997:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
111,585,116 209,116 319,880 0
(4) Shareholder Proposal on reinstatement of the dividend:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
13,000,515 85,662,822 975,725 12,475,050
At the close of business on the record date of April 30, 1997, there
were issued and outstanding 134,209,670 shares of the Registrant's Common Stock,
par value $.01 per share ("Common Stock"). There were represented at the
meeting, in person or by proxy, 112,114,112 shares of Common Stock. Such shares
represented 83.54 percent of the total number of shares of such class of stock
issued and outstanding on the record date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An index of the exhibits that are required by this item, and which are
furnished in accordance with Item 601 of Regulation S-K, appears on pages 1615
through 18.17. The exhibits which are in this report immediately follow the index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated July 17,August 13, 1997 (date
of earliest event reported) reporting that the Registrant was exiting its domestic
Woolworth general merchandise business.
-14-election of Reid Johnson as Senior
Vice President and Chief Financial Officer effective
September 8, 1997.
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1514
SIGNATURE
---------
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.
WOOLWORTH CORPORATION
---------------------
(Registrant)
Date: September 4,December 8, 1997 /s/ Bruce L. Hartman
--------------------
BRUCE L. HARTMANReid Johnson
---------------------
REID JOHNSON
Senior Vice President
and Controller
(Principal Accounting Officer)
-15-Chief Financial Officer
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1615
WOOLWORTH CORPORATION
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601
of Regulation S-K Description
----------------- -----------
1 *
2 *
3(i)(a) Certificate of Incorporation of the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989.1989 (incorporated herein by reference to
Exhibit 3(i)(a) to the Quarterly Report on
Form 10-Q for the quarterly period ended July
26, 1997, filed by the Registrant with the
SEC on September 4, 1997 (the "July 26, 1997
Form 10-Q").
3(i)(b) Certificates of Amendment of the Certificate
of Incorporation of the Registrant, as filed
by the Department of State of the State of
New York on (a) July 20, 1989 (b) July 24,
1990 and (c) July 9, 1997.1997 (incorporated
herein by reference to Exhibit 3(i)(b) of the
July 26, 1997 Form 10-Q).
3(ii) By-laws of the Registrant, as amended.amended
(incorporated herein by reference to Exhibit
3(ii) of the July 26, 1997 Form 10-Q).
4(a) The rights of holders of the Registrant's
equity securities are defined in the
Registrant's Certificate of Incorporation, as
amended (incorporated herein by reference to:
(a) Exhibits 3 (i) 3(i)(a) and 3 (i) 3(i)(b) to thisthe July
26, 1997 Form 10-Q.10-Q).
4(b) Rights Agreement dated as of April 4, 1988,
as amended January 11, 1989, between F.W.
Woolworth Co. ("FWW") and Morgan Shareholder
Services Trust Company (now, First Chicago
Trust Company of New York), as Rights Agent
(incorporated herein by reference to (a)
Exhibit 1 to the Registration Statement on
Form 8-A filed by FWW with the Securities and
Exchange Commission ("SEC") on April 12, 1988
(Registration No. 1-238) and (b) the Form 8
Amendment to such Form 8-A filed by FWW with
the SEC on January 13, 1989). The rights and
obligations of FWW under said Rights
Agreement were assumed by the Registrant
pursuant to an Agreement and Plan of Share
Exchange dated as of May 4, 1989, by and
between FWW and the Registrant (incorporated
herein by reference to Exhibit 2 to the
Registration Statement on Form S-4 filed by
the Registrant with the SEC on May 9, 1989
(Registration No. 33-28469)).
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16
4(c) Indenture dated as of October 10, 1991
(incorporated herein by reference to Exhibit
4.1 to the Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4(d) Forms of Medium-Term Notes (Fixed Rate and
Floating Rate).
-16-
17 (incorporated herein by
reference to Exhibits 4.4 and 4.5 to the
Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4(e) Form of 8-1/2% Debentures due 2022
(incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated January 16,
1992).
4(f) Purchase Agreement dated June 1, 1995 and
Form of 7% Notes due 2000 (incorporated
herein by reference to Exhibits 1 and 4,
respectively, to Registrant's Form 8-K dated
June 7, 1995).
4(g) Distribution Agreement dated July 13, 1995
and Forms of Fixed Rate and Floating Rate
Notes (incorporated herein by reference to
Exhibits 1, 4.1 and 4.2, respectively, to
Registrant's Form 8-K dated July 13, 1995).
5 *
8 *
9 *
10 Amendment No. 1Agreement with Reid Johnson dated as of July 16, 1997 to
the Credit Agreement dated April 9,September
8, 1997.
11 Computation of Net Income (Loss) Per Common
Share.
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
16 *
17 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
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17
27 Financial Data Schedule, which is submitted
electronically to the SEC for information
only and not filed.
-17-
18
99 Independent Accountants' Review Report.
-------------------------------------
* Not applicable
-18--17-
1918
Exhibits filed with this Form 10-Q:
Exhibit No. Description
- ----------- -----------
3 (i)(a) Certificate of Incorporation of the Registrant,
as filed by the Department of State of State of
New York on April 7, 1989.
3 (i)(b) Certificates of Amendment of the Certificate of
Incorporation of the Registrant.
3 (ii) By-laws of the Registrant, as amended.
10 Amendment No. 1Agreement with Reid Johnson dated as of July 16, 1997 to the
Credit Agreement, dated April 9,September 8, 1997.
11 Computation of Net Income (Loss) Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Statements.
27 Financial Data Schedule.
99 Independent Accountants' Review Report.